Statutory Merger Definition

The limited liability company (LLC) and the corporation are both formal business entities with plenty of their own advantages and disadvantages. When an entrepreneur is first forming their business, one or the other might seem like the right fit, but as the business grows and matures, they may realize that the other entity type would better suit their company.

While there are three different ways to convert a business from one entity type to another, it’s always recommended to use the statutory conversion method when possible. But what is a statutory merger, and why is it still in use? This article explains what a statutory conversion is, how the process works, some alternatives, and more.

What Is a Statutory Merger?

The statutory merger is no longer the most popular method for converting one type of business to another, but it is still used frequently in a handful of states. The statutory merger starts with the formation of a brand-new business entity, followed by a vote to approve a merger between the existing entity and the new one.

Then, the business owners will need to voluntarily and formally trade in their ownership in the previous entity for ownership shares in the new entity. Finally, they’ll need to draft and file a document (usually called a certificate of merger) with their Secretary of State to officially merge the two companies.

The reason this is no longer the preferred option is that there is a new method that is significantly less hassle, and also typically less expensive. However, it’s not available in all 50 states, which is why the statutory merger persists somewhat to this day.

What Is a Statutory Conversion?

The statutory conversion is the simplest way to convert a business from one entity type to another. Statutory conversions were introduced into the American business world fairly recently, and as such, they’re still only available in 35 states.

This process has some variance from state to state, but in general, it starts with the company’s ownership group agreeing to convert the business entity type and drafting a conversion plan. Then, those owners need to hold a vote to approve the conversion. In a corporation, the board usually needs to provide the company’s stockholders with the plan so they can vote on it, while in an LLC, just an approval from the majority of the company’s owners will be sufficient.

The next step is to draft and file the certificate of conversion. The exact information needed to complete the certificate of conversion can vary depending on which state where the conversion is occurring, but generally speaking, the business needs to provide the Secretary of State with the following information:

• The name of the entity
• The type of entity it’s converting from
• The jurisdiction where the business is located
• The mailing address of the business
• The name and address of the registered agent
• The entity type the business is converting into
• The results of the company’s voting process
• Signature of the company’s authorized person

The business will also need to prepare and file the formation documents for the business entity it wishes to convert to — the Articles of Organization for an LLC, or the Articles of Incorporation for a corporation. Finally, the business needs to formally dissolve its original business entity, and its statutory conversion is complete.

Can a business owner hire a service to complete a conversion for them?

If an entrepreneur feels intimidated by the conversion process or doesn’t have a lot of spare time to handle it, they have options. They could hire a business attorney to convert their business entity, although this is an extremely expensive route that could cost thousands of dollars.

Another option is to hire a business services company. While there aren’t nearly as many options as there are for forming an LLC or corporation, there are still several reputable companies offering business conversion services. Take a look at a few noteworthy options:

• Swyft Filings ($199): Swyft Filings has a great price point for this service, and they’ll complete every step of the process on a company’s behalf. When they’re finished, they’ll upload all of the relevant documents to a convenient online dashboard. It’s also worth noting that Swyft Filings receives spectacular customer feedback.
• LegalZoom ($229): LegalZoom is perhaps the best-known company in the business services industry, and while their pricing is a bit higher than Swyft Filings, they’re still a strong option. LegalZoom covers this service with a 100% satisfaction guarantee that ensures customers will receive a full refund if they’re unhappy with their service for any reason.
• BizFilings (price varies by state): Another solid choice for this service is BizFilings. While their pricing varies by state, they’re reliable for providing strong services at reasonable rates.

In Conclusion

Generally speaking, the statutory conversion is a much simpler method than the statutory merger for converting a business from one entity type to another. However, the fact that the statutory conversion isn’t available in all 50 states means that some entrepreneurs are stuck using the statutory merger anyway.

If either process gets overwhelming, entrepreneurs can hire a service to help streamline the process.

Recommended Articles:

• Statutory Merger vs. Statutory Conversion
• Merger Definition
• Statutory Conversion Definition
• Statutory Agent Definition
• Statutory Conversion vs. Nonstatutory Conversion
• Voluntary Dissolution Definition