The details of how to convert your Oregon limited liability company (LLC) to an Oregon 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 Oregon, 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. The conversion procedure is codified primarily in Sections 63.470 through 60.479 of the Oregon Revised Statutes (O.R.S.).
To convert your Oregon LLC to an Oregon corporation, you need to:
The plan of conversion contains key information about the conversion and must include:
For the last item, you might simply attach a copy of the articles of incorporation to the rest of the plan of conversion.
By default, Oregon’s conversion statute requires approval of the plan of conversion by a simple majority of the LLC members. However, the statute also allows for the possibility that a greater majority is required by the LLC’s articles of organization or operating agreement. For more details, check O.R.S. § § 63.473.
The articles of conversion will contain essentially the same information as the plan of conversion. More specifically, they must include:
Of course, the plan of conversion itself will contain the first two listed items. Also, by including the plan of conversion within the articles of conversion, you will necessarily be including your articles of incorporation.
The articles of incorporation for your new corporation will include such things as:
For your convenience, the Secretary of State publishes a blank articles of incorporation form. (At this time, there is no separate blank form available from the Secretary of State for the articles of conversion.)
The plan of conversion, articles of conversion, and articles 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. (As the Oregon Secretary of State cautions, “Because there are legal and financial consequences to changing your business type, please consult an attorney or a CPA before making your change.)
Your minimum filing fee for this process likely will be $100, which is the cost for filing the articles of conversion for domestic (Oregon) business entities.
Be aware that Oregon’s conversion statute states not only that all of your LLC’s property, as well as all of its liabilities, are automatically transferred to the new corporation, but also that any legal actions against the business may continue “as if the conversion had not occurred,” or your new corporation may be substituted for the LLC as a party in a lawsuit. For more information, check O.R.S. § 60.478.
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.
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.