The details of how to convert your Wisconsin limited liability company (LLC) to a Wisconsin 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.
Wisconsin’s Conversion Statute
In Wisconsin, 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 Department of Financial Institutions. 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 Section 183.1207 of the Wisconsin Statutes (Wis. Stat.).
To convert your Wisconsin corporation to a Wisconsin LLC, you need to:
The plan of conversion contains key information about the conversion, including such things as:
Wisconsin’s conversion statute does not contain specific rules for approval of the plan of conversion; instead, you need to rely on the rules for approving a merger, which are contained in Wisconsin’s LLC merger statute. (A merger is legally distinct from a conversion.) The rules for approving the conversion will depend on your particular circumstances. First, check your LLC’s operating agreement; if it contains rules for approving a merger (or conversion), follow those rules. If your operating agreement does not contain provisions for approving a merger (or conversion), approval requires the consent of more than 50% of the membership interests in the LLC. For more details, check Wis. Stat. § 183.1202.
The articles of incorporation, which must be included in your plan of conversion, will contain basic information about your new corporation, such as:
The certificate of conversion, which will be filed with the Department of Financial Institutions with the plan of conversion and articles of incorporation attached, will include contain some of the same information as the plan of conversion, as well as a few other items. More specifically, the certificate of conversion will include:
For your convenience, the Department of Financial Institutions has a downloadable document containing blank templates for the plan of conversion, articles of incorporation, and certificate of conversion, along with instructions.
The various documents required for the conversion process all may appear straightforward; however, keep in mind that 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.
Your minimum filing fee for this process likely will be $150, which is the cost for filing the certificate of conversion with the attached plan of conversion and articles of incorporation.
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:
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.