How conversions are carried out
Many states allow a business to convert directly from one form to another, such as an LLC into a corporation, by filing documents with the state and obtaining the approvals its governing documents require. Others allow conversion for some entity types but not all. New York permits direct conversion in some combinations but not others, so certain conversions are done by forming a new entity and merging the old one into it. Delaware's statutes are broader, which is one reason businesses sometimes move there before changing form. The route chosen affects which approvals are needed, whether the business keeps the same tax identification number, and how existing contracts and permits are treated.
Tax consequences come first
The tax effect often decides whether and how to convert. Converting an LLC taxed as a partnership into a corporation can frequently be done without immediate tax, while converting a corporation into an LLC is often treated as a liquidation that can trigger tax at the corporate and owner levels. S corporation status, state taxes, and the treatment of existing equity awards add further variables. These questions depend on the facts, so your tax adviser should be part of the planning from the beginning rather than reviewing documents at the end.
Contracts, permits, and owners
Even when a conversion is legally a continuation of the same business, counterparties may not see it that way. Leases, loans, and licenses may require consent or treat the conversion as an assignment or change of control, and government permits, bank accounts, and registrations often need to be updated. Owners' rights change too: an operating agreement is replaced by a charter and bylaws, or the reverse, and minority owners may have approval or appraisal rights. Bring the governing documents, the cap table, key contracts, and your reason for converting. We map the steps, the approvals, and the order of filings so the business keeps operating without interruption.
