The details of how you convert your Ohio limited liability company (LLC) to an Ohio 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 Ohio, you can use a relatively new, somewhat simplified procedure that allows you to convert your business from an LLC to a corporation largely by filing a few 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 no need to formally dissolve your LLC; rather, as Ohio’s law states, upon conversion, your LLC “is continued in” the new corporation, and otherwise “ceases to exist.” The conversion procedure is codified primarily in Sections 1705.371, 1705.381, and 1705.391 of the Ohio Revised Code (O.R.C.).
To convert your Ohio LLC to an Ohio corporation, you need to:
The written declaration of conversion contains key information about the conversion, including the following required items:
By default, Ohio’s conversion statute requires adoption of the declaration of conversion by a unanimous vote of the LLC members. However, the statute also allows for adoption based on a lesser vote if this is authorized in the LLC’s operating agreement. For more details, check O.R.C. § 1705.371(F).
The certificate of conversion contains some of the same information as the declaration of conversion, as well as a few other items. More specifically, it must contain:
A blank certificate of conversion form is available for download from the Secretary of State. You do not need to complete the affidavit included with the form.
The articles of incorporation for your new corporation will include the following information:
For your convenience, the Secretary of State publishes a blank articles of incorporation form.
The declaration of conversion, certificate of conversion, and articles of incorporation, and the notification affidavit all may seem straightforward; however, keep in mind that, as part of the declaration of conversion, you need to prepare bylaws. Moreover, converting your particular business may involve unexpected complications. Therefore, it may be advisable to work with an attorney prepare the necessary paperwork and otherwise assist with completing the conversion process.
Your minimum filing fee for this process likely will be $125, which is the cost for filing the certificate of conversion including the articles of incorporation.
Be aware that Ohio’s conversion statute states not only that all of your LLC’s property, as well as all of its obligations, are automatically transferred to the new corporation, but also that the rights of creditors continue unimpaired. For more information, check O.R.C. § 1705.391.
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 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, 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.