Converting an LLC to a Corporation in Georgia
If you are planning on converting an LLC to a corporation in Georgia, here's what you need to know.
The details of how to convert your Georgia limited liability company (LLC) to a Georgia corporation will vary depending on your specific situation. However, here is some general guidance on the process of conversion to a for-profit corporation.
Georgia’s Conversion Statute
In Georgia, you can use a relatively new, simplified procedure that allows you to convert your business from an LLC to a corporation largely by filing a few basic documents with the Secretary of State. 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. By the same token, there is also no need to dissolve your LLC; instead, under Georgia’s conversion statute, there is a “continuation of the existence” of your business in the new form of a corporation. The conversion procedure is codified primarily in Section 14-2-1109.2 of the Georgia Code (O.C.G.A.).
To convert your Georgia LLC to a Georgia corporation, you need to:
- get the LLC’s members to approve the conversion; and
- file a certificate of conversion and articles of incorporation with the Secretary of State.
By default, the Georgia conversion statute requires approval of the conversion by all LLC members. However, the statute also clearly allows other voting rules to apply if, for example, they are contained in your LLC’s articles of organization or operating agreement. For more details, check O.G.C.A. § 14-2-1109.2(a).
The certificate of conversion contains basic information about the conversion, including such items as:
- the name of your LLC
- the jurisdiction under which your LLC was formed (Georgia)
- a statement that the LLC is electing to become a corporation
- the effective date of the conversion, if later than the filing date
- a statement that the conversion has been approved as required by O.G.C.A. § 14-2-1109.2(a)
- a statement that the new corporation’s articles of incorporation, in a form that complies with relevant laws, is included with the certificate of conversion; and
- a statement of the basis for converting LLC membership interests into corporate shares, if that information is not contained in the articles of incorporation.
At this time, the Georgia Secretary of State does not provide a blank form or sample certificate of conversion; instead, the Secretary of State requires that you draft your own certificate of conversion.
The articles of incorporation will contain basic information about your new corporation, such as its name, the number of authorized shares to be issued, the street address and county where its registered office is located, its principal mailing address, the street address of its registered agent, the names and addresses of the incorporators, and an authorized signature. The Secretary of State publishes a guidance document on forming a corporation that includes sample articles of incorporation.
The plan of conversion, certificate of conversion, and articles of incorporation all may appear straightforward; however, converting your particular business may involve unexpected complications. Therefore—as the Secretary of State urges in its own guidance—you should strongly consider working with a business attorney to draft the required documents and otherwise complete the conversion process.
Your total filing fees for this process likely will be at least $100. According to personnel at the Secretary of State, this amount should cover filing of both the articles of conversion and the articles of incorporation. However, additional fees, such as for name reservation ($25), may also be necessary. You are strongly advised to consult with an attorney to assure you are meeting all filing and notice requirements for your conversion.
Georgia’s conversion statute states that all of the LLC’s property, as well as all of its debts, liabilities, and other obligations, are automatically transferred to the new corporation, and that any legal actions against your business may continue just as if no conversion had occurred, and all creditors’ rights with respect to your business continue unimpaired. For more information, check O.G.C.A. § 14-2-1109.2(c).
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:
- drafting corporate bylaws
- electing corporate officers and appointing corporate directors
- holding an initial board meeting
- issuing stock certificates
- using the official corporation name on your business documents; and
- filing an annual registration with the state.
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 adviser 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 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.