The details of how to convert your Missouri limited liability company (LLC) to a Missouri corporation will vary depending on your specific situation. However, here is some general guidance on the process of conversion to a for-profit corporation. Because the tax consequences can be significant, you should consult with a tax adviser before undertaking any conversion.
In Missouri, you can use a relatively new, simplified procedure that allows you to convert your business from an LLC to a corporation largely by filing one key document with the Secretary of State. The 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 Missouri’s conversion statute, your converted business is “deemed to be the same entity as” the LLC.
While roughly 40 states have business-entity conversion statutes, Missouri’s version is somewhat unusual, for reasons discussed below. The conversion procedure is codified primarily in Section 351-408 of the Missouri Revised Statutes (R.S.Mo.).
To convert your Missouri LLC to a Missouri corporation, you need to:
Some states’ conversion statutes explicitly require an LLC to prepare a “plan of conversion” that specifies the terms and conditions of the conversion, including the basis for converting LLC membership interests into corporate shares, and sometimes also the new corporation’s articles of incorporation and even bylaws. Missouri’s statute makes no reference to a plan of conversion. Instead, the Missouri statute only states generally that the conversion must be approved prior to filing the certificate of conversion, and, separately, that the articles of incorporation for the new corporation also be approved prior to filing.
By default, the procedure for approving the conversion and the articles of incorporation will be based on the LLC’s articles of organization, operating agreement, or any other written agreement that relates to conversion approval. The matter becomes less clear if no LLC document provides instructions on approving conversions. In that case, you would need to rely on Missouri LLC law—which does not appear to provide specific guidance on voting rules for LLC-to-corporation conversions. (By contrast, some other states’ conversion statutes state that approval of a plan of conversion requires unanimous consent of all LLC members if no LLC documents provide an alternative rule. Moreover, some other states’ statutes explicitly state that if no statutory voting rules for exist for conversions, you should substitute the rules for approval of mergers.) For more details, check R.S.Mo. § 351-409(8).
The certificate of conversion contains basic information about the conversion. More specifically, it must include:
In addition, you must file a copy of your articles of incorporation with the certificate of conversion. The Missouri Secretary of State does not provide a sample version or blank form for the certificate of conversion.
The articles of incorporation contain basic information about your new corporation, including:
A blank articles of incorporation form, including limited instructions, is available from the Secretary of State.
Given the somewhat unusual nature of Missouri’s conversion statute, including the potential ambiguity regarding LLC member approval of conversion, as well as the lack of a sample certificate of conversion, you should strongly consider seeking the assistance of a business attorney to draft the required documents and otherwise complete the conversion process.
Missouri has not updated its online list of filing fees since its conversion statute came into effect. However, Secretary of State personnel state that the total filing fee for conversion should be $58.
Finally, be aware that Missouri’s conversion statute states not only that all of your LLC’s property, as well as all of its debts, liabilities, and duties, are automatically transferred to the new corporation, but also that all rights of creditors continue unimpaired, and all legal actions against your LLC “remain vested in” the new corporation. For more information, check R.S.Mo. § 351-408(6).
The foregoing information explains the basic steps for converting from an LLC to a 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 adviser before undertaking any conversion.
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.