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Business Entity Conversion in Delaware

You may start a new business in Delaware as a partnership or proprietorship but later on you may want to change the business structure to a limited-liability company or a corporation. This shift in business structure may be due to several reasons like reporting requirements, impact on tax obligations, personal liability, self-employment tax burden, expansion of business etc. The process that will enable you to change your existing business structure is Delaware entity conversion and this article will take you through what it is and the different business structures that you can change to like the process to convert a corporation to an llc in Delaware.

Delaware Business Entity Conversion

Once you start a new business, it will witness growth and expansion over a period of time and that is when you may want to restructure your business. Re-structuring the entity is considered as a business entity conversion in Delaware where-in you shift from one type of entity to another type to enjoy tax, privacy, and other benefits. It is like changing from a proprietorship to a C corporation or converting an LLC to a corporation in Delaware. This type of change is made possible through a specific process of conversion in the state and may be different for different forms of companies.

What does business entity conversion in Delaware mean?

You can form different types of businesses in the state of Delaware right from Corporations to Limited Partnerships (LP), Public Benefit Corporations, Statutory Trusts, Limited Liability Companies (LLC), General Partnerships (GP) and much more. Now, if you want to change the type or form of the company currently operational, what do you do? This is where you need to opt for Delaware entity conversion as it will help you to change business structure without the need to dissolve the existing business.

There are a lot of reasons why you would want to opt for a Delaware business conversion. It is important to understand that you have to take into account several factors that will help you to make this decision. Some of the factors to consider are:

  • The business owner wants to avoid any kind of personal liability
  • An entrepreneur wants to create a pass-through taxation entity
  • The ways through which financing has to be obtained
  • Owner requires flexibility regarding splitting of their management and economic rights
  • If the owner feels their personal assets are at risk especially from a legal suit by a creditor
  • Risk of civil litigation

For example: Edward and Edith formed a business in Delaware to promote home-baked confectionary. Edith’s role in the business was operations and Edward was the financier. They registered an LLC in the state as they felt it would best meet their requirements. The business experienced growth and success over a period of time and it was time for expansion. A venture capitalist “ABC” showed interest in investing in their expansion but the investor could only finance if their business was a corporation. In order to expand and have it financed through a venture capitalist they opted to convert llc to corporation in Delaware.

Normally, there are three ways to change the form of a business entity and they are:

  • Dissolution of the existing business and forming of a new entity
  • Inter-entity mergers where the old business entity type gets merged into the new entity being formed
  • Statutory conversion or Delaware entity conversion where none of the above is applicable as you simply change the form of the entity to another type

Changing Business Entity in Delaware

If you have considered all the factors and want to go ahead with business entity conversion in Delaware, what is the process? The conversion process is governed by the Delaware Code for the type of business entity being converted and the entity it will convert to. Let us look at the most preferred Delaware business conversion and the process.

Converting LLC to Corporation in Delaware

If you have formed a limited-liability company but now you want to change the business entity type to that of a corporation, how do you bring about this structural change? You will have to opt for business entity conversion in Delaware, which is governed by 2 DE Code § 265 (2014 through 146th Gen Ass). The following steps will help you understand how the process to convert llc to corporation in Delaware works.

  • Step#1: You have to first get approval from the existing members of your LLC for Delaware entity conversion
  • Step#2: Once the approval is there, you will be required to file for a certificate of conversion to corporation executed in accordance with 2 DE Code § 18-214 and filed in accordance with 2 DE Code § 103
  • Step#3: You can download and submit the “Certificate of Conversion from a Delaware or Non-Delaware Limited Liability Company to a Delaware Corporation form” along with one Cover Memo
  • Step#4: You will have to submit the “certificate of incorporation” pursuant to 2 DE Code § 103 (2014 through 146th Gen Ass). This has to be filed along with the “certificate of conversion”
  • Step#5: The paperwork or application has to be filed with the office of the Department of State, Delaware Division of Corporations along with the filing fee. The total filing fee will be $253, which includes $164 for certificate of conversion and $89 for certificate of incorporation

It is important to ensure the form and cover memo contain all accurate and relevant information to ensure proper business entity conversion in Delaware. Information requirements include:

  • The cover letter or memo should contain your name, address and telephone/fax number, so that the concerned department can contact you
  • Information regarding the jurisdiction of formation of the Limited Liability Company
  • The date of formation of the LLC
  • The name of the LLC prior to filing the form to convert llc to corporation in Delaware
  • The name of the new entity as set forth in the Certificate of Incorporation
  • The conversion document has to be signed by a witness
  • You will also have to provide details pertaining to the amount of total stock that the corporation is authorized to issue

Are you wondering how to convert an LLC to a corporation in Delaware?

Converting Corporation to LLC in Delaware

If you have formed a business corporation and want to change the business entity type to that of a limited-liability company (LLC), how do you proceed? You will have to opt for business entity conversion in Delaware, which is also known as statutory conversion. Once you convert a corporation to llc in Delaware, all your assets as well as liabilities will get transferred to the newly converted entity or the limited-liability company. The corporation to LLC conversion is governed by 2 DE Code § 18-214 (2014 through 146th Gen Ass) and the following steps will help you in understanding the process.

  • Step#1: You have to first get the approval of the stockholders of the corporation for the Delaware entity conversion to take place
  • Step#2: Once the approval is there, you will be required to file for a certificate of conversion to corporation executed in accordance with 2 DE Code § 18-214 and filed in accordance with 2 DE Code § 18-204 (2014 through 146th Gen Ass)
  • Step#3: You can download and submit the “Certificate of Conversion from a Delaware or Non-Delaware Corporation to a Delaware Limited Liability Company form” along with one Cover Memo
  • Step#4: You will have to submit the “certificate of formation” pursuant to 2 DE Code § 18-201 (2014 through 146th Gen Ass). This has to be filed along with the “certificate of conversion”
  • Step#5: The paperwork or application has to be filed with the office of the Department of State, Delaware Division of Corporations along with the filing fee. The total filing fee will be $290, which includes $200 for certificate of conversion and $90 for certificate of formation

It is important to ensure the form and cover memo contain all accurate and relevant information to ensure proper business entity conversion in Delaware. Information requirements include:

  • The cover letter or memo should contain your name, address and telephone/fax number, so that the concerned department can contact you
  • Information regarding the jurisdiction of incorporation or formation of the corporation
  • The date of incorporation
  • The name of the corporation prior to filing the form to convert corporation to llc in Delaware
  • The name of the new entity as set forth in the Certificate of Formation
  • The conversion document has to be signed by a witness/authorized person
  • Name and address of the registered agent hired by your company like IncParadise

Do you want to convert your corporation to a Delaware LLC?

Converting Foreign Entity to Delaware Entity

If you have formed a business in any other state or if it is not based in Delaware and you want it to be converted to a Delaware entity; is it different from that of domestic conversions? Business entity conversion in Delaware makes it possible to convert a Non-Delaware entity like a corporation to a Delaware entity or corporation. The following steps will help you in understanding the process.

  • Step#1: You have to first get the approval of the stockholders of the non-Delaware corporation for the Delaware entity conversion to take place
  • Step#2: Once the approval is there, you will be required to file for a certificate of conversion to a Delaware entity executed in accordance with 2 DE Code § 265 (2014 through 146th Gen Ass)
  • Step#3: You can download and submit the “Certificate of Conversion from a Non-Delaware Corporation to a Delaware Corporation form” along with one Cover Memo
  • Step#4: You will have to submit a “certificate of incorporation”, which is to be filed simultaneously with the “certificate of conversion”
  • Step#5: The paperwork or application has to be filed with the office of the Department of State, Delaware Division of Corporations along with the filing fee.

It is important to ensure that you provide required information for Non-Delaware to Delaware entity conversion in the application and cover memo. Information requirements include:

  • The cover letter or memo which should contain your name, address and telephone/fax number, so that the concerned department can contact you
  • Information regarding the jurisdiction of incorporation or formation of the non-Delaware company
  • The date of incorporation/formation of the non-Delaware company
  • The name of the non-Delaware company prior to filing the form for Delaware business conversion
  • The name of the new entity as set forth in the Certificate of Formation/Incorporation
  • The conversion document has to be signed by a witness/authorized person

Are you thinking of converting your foreign company into a Delaware business?

How does IncParadise help you?

You may have your own reasons to opt for a business entity conversion in Delaware and it can be from any form of business to any other. What IncParadise can do is play an important role by providing meaningful assistance in the process of changing your business entity in Delaware. IncParadise is one of the most reputed registered agents with a strong physical presence in the state and we specialize in catering to varied requirements of new and existing businesses.

We also provide an array of additional services for your Delaware business including new business formation, S Corporation status, foreign qualification, EIN or Tax ID, and amendment of articles among others.

Do you need assistance with restructuring your business in Delaware?