Converting an LLC into a Corporation

LLCs are pretty great. They combine the informality of a partnership with the limited liability of a corporation. They can be taxed like corporations or like partnerships. They're simple to form. They're cheap(er) to maintain. So why would you want a corporation instead of an LLC?

There are a number of possible reasons. The one that keeps popping up in my practice is contractors licensed by the California CSLB who did not realize the added costs of using an LLC instead of corporation. I addressed those added costs here.

How do you convert an LLC into a corporation? Here's the usual procedure:

1. Plan of Conversion: Draft a formal Plan of Conversion (required by Cal. Corp. Code section 17710.03 and Tex. Bus. Orgs. section 10.101);

2. LLC Meeting and Minutes: Hold a meeting of the members and vote on the conversion; draft minutes confirming agreement of conversion and ratifying the Plan of Conversion;

3. Formation Documents: Draft and file the Articles of Incorporation (California) or Certificate of Formation and Certificate of Conversion (Texas) for the new corporation (other filings are sometimes required; you will want to speak with your attorney);

4. Bylaws: Draft the bylaws for the corporation (implicitly required in California [see Cal. Corp. Code section 213] and explicitly required in Texas [see Tex. Bus. Orgs. section 21.057]);

5. Corporate Meeting: Hold the initial meeting of the corporation's Board of Directors, at which you will ratify the conversion, schedule the initial shareholders' meeting, appoint the officers, ratify the Articles, adopt the bylaws, issue stock, etc.

Each of these steps has their own sub-steps, and they are not as complicated as they may sound. Of course, your business attorney can walk you through all of it.