The process of converting an LLC to a corporation can vary depending on the circumstances of your business. There are three types of conversion available—which method you choose depends on where you primarily do business and whether you meet the requirements for each method.
Here’s an overview of each of them.
This type of procedure is relatively new, and offers business owners a more streamlined means of converting an LLC to a corporation. All it takes is filing a few forms with the Secretary of State’s office. Every state and territory that allows statutory conversions has its own specific forms that you must fill out, but in general, the steps involve:
- Preparing a conversion plan, which must be approved by the LLC members
- Filing a certificate of conversion and, as needed, an LLC certificate of formation and any other legally required documents
The effects of a statutory conversion are the same as other forms of conversion—those who were members of the LLC are now stockholders in the corporation, and all assets and liabilities of your LLC are now assets and liabilities of the corporation. The legal structure of the LLC then ceases to exist. These effects all occur automatically, rather than through separate individual agreements that require additional filings, making it a speedier method.
This process is a bit more complicated than a statutory conversion, and is frequently used in states and territories that do not allow statutory conversions. The basic steps are as follows:
- Form a new corporation (LLC members become stockholders)
- LLC members vote to approve the merger as both LLC members and stockholders
- LLC members exchange membership rights for corporate shares
- File a certificate of merger and other legally required documents with the Secretary of State’s office
The main difference between this process and statutory conversions is that you must create your corporation as a separate business entity before transferring the LLC’s assets and liabilities. This process generally involves extra fees and additional steps. You must also formally exchange membership rights for corporate shares through a drawn-up merger agreement, and file a separate form to officially dissolve your LLC.
The final available conversion process is nonstatutory conversion, the most complicated and expensive method of conversion. In most cases, it is recommended that you avoid using this process if at all possible—most businesses that would look at this category are eligible for a statutory conversion or statutory merger.
The main steps of this process are as follows:
- Form a new corporation
- Transfer the assets and liabilities of the LLC to the corporation
- Arrange a formal exchange of LLC membership interests for corporation shares
- Formally liquidate and dissolve the corporation
For more information about the process of converting an LLC to the corporation and to obtain legal advice for this process, contact a skilled corporate planning attorney in the U.S. Virgin Islands.
Steven K. Hardy is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.