In business, several entities form the classification of companies, such as the Limited liability, sole proprietorship, and the likes, each with its restrictions. You may have specific reasons you wish to change your business entity during its life span based on various restrictions, and you cannot do that without the help of a legal partner.
What is business entity conversion?
Business entity conversion, also referred to as statutory conversion or change of business entity, is the process of changing your current business entity to another business entity legally. You do not have to forfeit your existing business entity or need to form a new one entirely.
Hypothetically speaking, say you need to convert; you operate a corporation business and wish to convert it to an LLC. The corporation is your existing business entity, and the LLC has tagged the converted entity as the case may be.
Why do businesses convert their entity?
A change of business entity is one of the most accessible and most affordable ways to convert business entities. It is favored above mergers and dissolution to form a new business conversion. That’s not all; since it changes the legal structure of businesses, people tend to switch to find new ways to do things or avoid some practices altogether.
For this reason, an LLC may choose to change to a corporation because they wish to reduce their taxes and allocate shares to their staff members. Better still, it can also be a way to attract specific contracts or business ventures. On the other hand, corporations tend to switch to an LLC business entity for their flexible decision-making process, taxation process, and other administrative hold-ups corporations pass through.
Converting your business entity
The process of changing your business entity usually has a three-part section that will go through the Secretary of State; hence you will need the guidance of attorneys. They include a conversion plan, articles of incorporation for the supposed entity, and the certificate of conversion. Each state may have its own rules, but these three things are constant factors.
Conversion plan: A state statute determines this document and the term upon which the conversion is being made. It includes all the required organizational information such as the name of the converted and converting entity, a statement of continued support existence and approval. The conversion plan will also state all the rights and obligations of every member.
Articles of incorporation: This equals a business formation document regarding different business entities. Businesses differ in terms of their entity, but it is vital to a successful conversion.
Certificate of conversion: This document acts as the seal to finish your conversion process. It is filled alongside other papers with a few to effect the change of business entity. The certificate usually contains approval to back the conversion plan and tax information.
However, while most states have peculiar statutes in place, everything is transferred to the new business entity once a conversion is complete. This includes liabilities assets that may have tax implications depending on the business.
If you feel a business entity conversion will benefit your business, why not start today by booking a consultation with LCPC legal.