Converting an LLC to a Corporation or S Corporation in Louisiana
If you are planning on converting an LLC to a corporation in Louisiana, here's what you need to know.
The details of how to convert your Louisiana limited liability company (LLC) to a Louisiana corporation will vary depending on your specific situation. However, here is some general guidance on the process.
Louisiana’s Conversion Statute
In Louisiana, 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 forms with the Secretary of State. This procedure, technically known as “statutory conversion,” will automatically transfer 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 dissolve your LLC; on the contrary, under Louisiana’s conversion statute, the one business entity involved in the conversion, which is originally an LLC, is simply considered by default to continue its existence in the form of a corporation. The conversion procedure is codified primarily in sections 12:1601, 12:1602, 12:1603, 12:1604, and 12:1605 of the Louisiana Revised Statutes (R.S.).
To convert your Louisiana LLC to a Louisiana corporation, you need to:
- get the LLC’s members to approve the conversion; and
- file a conversion application, including articles of incorporation and initial report, with the Secretary of State.
Louisiana’s conversion statute requires that your LLC approve the conversion before you file the necessary paperwork with the Secretary of State. The statute is very general regarding what is necessary for approval, stating simply that the conversion must be approved in whatever manner is specified by the appropriate LLC documents and “in the same manner provided for by law.” In many cases, this will mean a simple majority vote of your corporation’s shareholders, but you should check your LLC’s articles of organization and operating agreement to make sure. (You can find the brief language regarding statutory approval requirements at R.S. § 12:1602(A).)
The conversion application is a relatively simple document that provides basic information primarily about your existing corporation and the new LLC you want to create. Note that the Secretary of State, following technical language in the conversion statute, tends to refer to the “converting entity” (your corporation) and the “converted entity” (your LLC). At a minimum, the application should include:
- the name of the converting entity (your LLC)
- the name of the converted entity (your new corporation)
- a statement that the converting entity is continuing its existence in the form of the converted entity (i.e., your LLC will continue its existence in the form of a business corporation)
- the manner and basis for converting LLC membership interests into corporation stock
- a statement that the conversion has been authorized and approved in accordance with Louisiana’s conversion statute (R.S. 12:1601 et seq.)
- the information required in the corporation’s articles of incorporation (see below); and
- the signature of a member-manager (if management is by members) or of a manager (if management is by one or more managers).
The Louisiana Secretary of State does not have a sample conversion application available online; instead, the Secretary of State asks that you call the number provided on this webpage (see the section headed “Conversion of Business Entities”) and ask that a sample be faxed or emailed to you.
The required information in a corporation’s articles of incorporation, which must be included in your conversion application, includes the name of your corporation, a statement that the corporation may engage in any lawful activity for which business corporations may be formed, the duration of the corporation (typically you will simply indicate “perpetual”), the total number of shares that the corporation has authority to issue, a statement that there is only one class of shares along with the par value of each share, and the full name and address of the incorporator.
The initial report is a simple form containing basic information about your new corporation, including its name, street address of registered office, name and street address of any registered agent, and name and street address of each of the first directors.
The Secretary of State publishes a PDF file containing blank forms for the articles of incorporation and initial report, along with basic instructions. Note that while the conversion application, articles of organization, and initial report may appear simple, some of the issues involved in converting your particular business may involve unexpected complications; therefore, it may be advisable to consult with a business attorney before completing these documents.
It appears that the basic filing fee for this process should be $75, which covers the conversion application and initial report; however, you should check with the Secretary of State to confirm the amount of any fees before filing.
Keep in mind that Louisiana’s conversion statute states not only that all of the LLC’s property, as well as liabilities and obligations, are automatically transferred to the new corporation, but also that all rights of creditors against the LLC continue against the new corporation “as if the conversion had not occurred,” and all legal actions involving the LLC may continue with the new corporation without substituting any parties. For more information, check R.S. § 1605.
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 the required annual report 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. 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.