Converting an LLC to a Corporation or S Corporation in Nevada
If you are planning on converting an LLC to a corporation in Nevada, here's what you need to know.
The details of how to convert your Nevada limited liability company (LLC) to a Nevada corporation will vary depending on your specific situation. However, here is some general guidance on the process.
Nevada’s Conversion Statute
In Nevada, 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 forms 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 Nevada’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 Sections 92A.005 through 92A.280 of the Nevada Revised Statutes (NRS.). (The latter range of sections comprises most of Chapter 92A of the Nevada Revised Statutes, which is the chapter covering the state’s laws relating to “mergers, conversions, exchanges, and domestications.”)
To convert your Nevada LLC to a Nevada corporation, you need to:
- prepare a plan of conversion
- have the LLC members approve the plan of conversion; and
- file articles of conversion, the plan of conversion, and articles of incorporation with the Secretary of State.
The plan of conversion contains key information about the conversion; this includes such things as:
- the name of your LLC and of your new corporation
- the fact that your LLC is governed by Nevada law and that your corporation, too, will be governed by Nevada law
- the fact that the type of business to which you are converting is a corporation
- the terms and conditions of the proposed conversion
- the basis for converting LLC membership interests into corporate shares; and
- copies of the corporation’s “charter documents” (i.e., articles of incorporation and bylaws).
By default, the Nevada conversion statute requires approval of the plan of conversion by a majority of LLC’s membership interests; and, if there is more than one class of membership interest, then by a majority of each class. However, the statute does allow for the possibility that other voting rules may apply, for example because of a provision in the LLC operating agreement. For more details, check NRS § 92A.150.
The articles of conversion must contain the following pieces of information:
- the current name of your business, its entity type (limited liability company), and the jurisdiction where its formed (Nevada)
- the intended name of your business after conversion, its entity type (corporation), and the jurisdiction where it will be formed (Nevada); and
- a statement that the plan of conversion has been approved in accordance with Nevada law.
In addition, the articles of conversion must include a copy of the corporation’s articles of incorporation, and, optionally, a copy of the plan of conversion. (If you choose not to include the plan of conversion, you must make sure a signed copy is on file at the new corporation’s registered office.) Blank articles of conversion, including instructions, are available from the Secretary of State. You should use the state’s form to complete your filing.
The articles of incorporation will contain basic information about your new corporation. This includes things like the corporation’s name, the name and Nevada address of its registered agent, the authorized number of shares of stock, names and addresses of board members or trustees, a statement of the corporation’s purpose, the name, address, and signature of the incorporator, and the signature of the registered agent. A blank articles of incorporation form, including instructions, is available online.
While the plan of conversion, articles of conversion, and articles of incorporation may appear straightforward, converting your particular business may involve unexpected complications. It may be advisable to work with a business attorney to draft and file the required documents.
Your minimum total filing fee for this process will likely be at least $425, which includes a minimum fee of $350 for filing the articles of conversion and a minimum fee of $75 for filing the articles of incorporation. However, the cost could be higher depending on the value of the authorized number of shares, the use of additional filing services, or for other reasons. Filing fee information is included with the instructions on the articles of conversion form and articles of incorporation form.
Keep in mind that Nevada’s conversion statute states not only that title to all of the LLC’s property, as well as all of the LLC’s liabilities, is automatically transferred to the new corporation, but also that any pending legal actions against the LLC may continue against the corporation “as if the conversion had not occurred,” or the corporation may be substituted for the LLC as a party. For more information, check NRS § 92A.250(3).
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 list 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 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, 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.