The details of how you to convert your Connecticut limited liability company (LLC) to a Connecticut corporation will vary depending on your specific situation. However, here is some general guidance on the process of conversion to a for-profit corporation.
Connecticut’s Conversion Statute
In Connecticut, you can use a relatively new, simplified procedure that allows you to convert your business from an LLC to a corporation. Under the procedure, your main task is to file a few basic documents with the Secretary of the State (SOTS). This procedure, technically known as “statutory conversion,” automatically transfers your LLC’s assets and liabilities to the new corporation. Unlike other methods of conversion, only one business entity is involved: You do not need to separately form a corporation before the conversion can occur. The conversion procedure is codified primarily in Sections 34-600 through 34-608 and 34-631 through 34-636 of the Connecticut General Statutes (Conn. Gen. Stat.).
To convert your Connecticut LLC to a Connecticut corporation, you need to:
You must record and keep your plan of conversion. The plan of conversion must contain:
By default, Connecticut’s conversion statute requires approval of the plan of conversion by at least two-thirds of the LLC’s members. However, this requirement may be superceded by a provision in your LLC’s articles of organization.
The certificate of conversion contains much of the same basic information about the conversion as the plan of conversion, including:
The certificate of incorporation for your new corporation will include:
For your convenience, the SOTS publishes a blank certificate of incorporation form.
The plan of conversion, certificate of conversion, and certificate of incorporation all may appear straightforward. However, converting your particular business may involve unexpected complications. Therefore, it may be advisable to work with a business attorney to draft the required documents and otherwise complete the conversion process.
All of your LLC’s property and liabilities are automatically transferred to the new LLC. In addition, be aware that the name of your new corporation can be substituted for that of your former LLC in any pending action or proceeding—such as lawsuits brought against your business.
The foregoing information explains the basic steps for converting from LLC to C Corporation. If you want to convert to an S Corporation, you will also need to file IRS Form 2553.
Apart from the foregoing steps, you will also need to take care of all the tasks normally associated with creating and maintaining a new corporation, such as:
It’s important that you follow all of these required formalities in order to ensure that your business continues to have limited liability and can take advantage of various potential tax benefits. For a more complete discussion of the steps involved in forming a corporation, consult Incorporate Your Business: A Legal Guide to Forming a Corporation in Your State, by Anthony Mancuso (Nolo).
One other key step in the conversion process is to make sure that no business contracts or agreements, such as bank documents, leases, licenses, and insurance, will be nullified by your business’s entity change.
The IRS makes clear in a 2004 bulletin that, generally speaking, it will tax a statutory conversion as though the LLC members formally transferred all LLC assets and liabilities to the corporation in exchange for stock, and then immediately liquidated the LLC. However, the specific tax consequences for LLC-to-corporation conversions vary from one case to the next. Because the tax consequences can sometimes be significant, you should consult with a tax advisor before undertaking any conversion.
Other Considerations and Information
Our main concern here has been converting the legal form of your business from an LLC to a corporation. However, if you’re seeking to convert your LLC’s tax status from partnership to corporation without changing the LLC’s legal form, you only need to file IRS Form 8832 (to be taxed as a C corporation) or IRS Form 2553 (to be taxed as an S corporation). (By default, the IRS taxes a multi-member LLC as a partnership and a single-member LLC as a so-called “disregarded entity;” there is no separate IRS tax category for LLCs.) While the IRS forms for changing tax status are fairly straightforward, do be aware that this procedure—known as “Check-the-Box”—involves special eligibility criteria; you can find those criteria in the instructions included with the forms.
Keep in mind that certain considerations may affect the timing of your conversion. For example, if you are converting to a C corporation in order to make your business more attractive to outside investors, you will probably need to convert before any investment occurs. Conversely, if outside investors are not at issue, but the specific nature of your LLC’s assets and liabilities will lead to an undesirable tax burden for the current tax year, you may need to at least temporarily delay the conversion.
For additional guidance on converting from an LLC to a corporation, check Converting an LLC to a Corporation or S Corporation and Corporations and S Corporations vs. LLCs. For information on conversion rules in other states, check Nolo’s 50-State Guide to Converting an LLC to a Corporation.