The details of how to convert your Indiana limited liability company (LLC) to an Indiana 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 Indiana, 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. By the same token, there is also no need to dissolve your LLC. Instead, under Indiana’s conversion statute, your business is considered to be the same entity “without interruption as the [LLC] that existed before the conversion.” The conversion procedure is codified primarily in Sections 23-1-38.5-10 through 23-1-38.5-16 and Section 23-18-7-3 of the Indiana Code (Ind. Code).
To convert your Indiana LLC to an Indiana corporation, you need to:
You must also be up to date in filing annual reports for your business before filing for conversion.
The plan of conversion contains key information about the conversion, including such things as:
By default, Indiana’s conversion statute requires approval of the plan of conversion under the same rules that would apply approval of a merger. More specifically, unless your LLC’s operating agreement provides otherwise, all LLC’s members must consent to the conversion. For more details, check Ind. Code § 23-18-7-3.
The articles of entity conversion contain some of the same information as the plan of conversion, as well as a few other items. Specifically, they must include:
A blank articles of entity conversion form is available for download from the Secretary of State. Note that the form includes places for information that might otherwise be contained in your new corporation’s articles of incorporation. If you use the Secretary of State’s form, you should not need to file separate articles of incorporation. (Your articles of incorporation should include the name and street address of your new corporation, the name and street address of the new corporation’s registered agent, the number of shares the corporation is authorized to issue, the names and street addresses of the incorporators, and one or more incorporator signatures. The Secretary of State publishes a blank articles of incorporation form, although it should not be necessary for a conversion.)
The plan of conversion and articles of entity conversion may appear straightforward; however, keep in mind that you also need to prepare articles of incorporation and bylaws as part of the plan of conversion. Moreover, 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.
Your minimum filing fee for this process likely will be $30, which is the cost for filing the articles of entity conversion, including the information that would otherwise be contained in articles of incorporation.
Be aware that Indiana’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.” For more information, check Ind. Code § 23-1-38.5-15.
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.