Convert Your California Business Entity
Complete guide to converting between LLCs, corporations, partnerships, and more. Understand the process, tax implications, and choose the right path for your business.
Select Your Conversion Path
Converting Your LLC to a Corporation
The most common conversion for growing companies seeking VC funding or planning to go public. California allows statutory conversion that preserves your EIN and contracts.
Approve the Conversion
The conversion requires approval by all LLC members (or as specified in your operating agreement). Document the approval with written consent or meeting minutes.
Documentation: Written consent or meeting minutes
Draft Articles of Incorporation
Prepare articles of incorporation for the new corporation. Include authorized share structure, registered agent, and corporate purpose.
Stock classes: Common stock (can add preferred later)
Par value: Typically $0.00001 per share
File Certificate of Conversion
File Form CONV-1 (Certificate of Conversion) along with the Articles of Incorporation with the Secretary of State.
Processing: 3-5 business days standard
Expedite: 24-hour available for additional fee
Adopt Corporate Bylaws & Issue Stock
Hold an organizational meeting to adopt bylaws, elect directors, appoint officers, and issue shares to former LLC members.
83(b) elections: May be needed for restricted stock
Stock certificates: Issue or maintain uncertificated shares
Update Tax Status & Registrations
Notify the IRS of entity change, update state tax accounts, and file necessary elections (S-Corp if desired).
S-Corp election: File Form 2553 within 75 days if desired
State tax: Update FTB registration
Benefits of Statutory Conversion
Preserves contracts, licenses, and bank accounts. Same EIN continues. No dissolution required. Creditors and counterparties don't need to consent.
Watch the Timing
If you want S-Corp status, file Form 2553 within 75 days of conversion. For VC funding, allow 2-4 weeks for conversion before due diligence begins.
Converting Your Corporation to an LLC
Less common than LLC-to-Corp, but useful when founders want pass-through taxation without the S-Corp restrictions. California permits statutory conversion.
Board and Shareholder Approval
The board of directors must recommend the conversion, and shareholders must approve (typically majority of outstanding shares).
Shareholder vote: Majority required unless articles specify more
Draft LLC Operating Agreement
Prepare a comprehensive operating agreement that allocates membership interests, defines management structure, and addresses distributions.
Management: Member-managed or manager-managed
Tax allocation: Define profit/loss sharing
File Conversion Documents
File Certificate of Conversion and Articles of Organization with the Secretary of State.
Processing: 3-5 business days
Address Tax Implications
The conversion may be treated as a liquidating distribution for tax purposes. Consult a tax advisor to understand capital gains implications.
S-Corp to LLC: Generally tax-free if requirements met
Built-in gains: May trigger recognition
Tax Warning: C-Corp Conversion
Converting a C-Corp to LLC can trigger a taxable liquidation at both corporate and shareholder levels. Get tax advice before proceeding—this conversion is often not tax-efficient.
When This Makes Sense
Most common for: (1) S-Corps that want to eliminate S-Corp restrictions, (2) Family businesses seeking flexible profit allocation, (3) Real estate holding companies.
S-Corp Election and Revocation
Changing between C-Corp and S-Corp taxation doesn't require changing your entity type—it's a tax election with the IRS. Understanding the differences helps you choose correctly.
California S-Corp Quirk
California doesn't fully recognize S-Corp status. CA S-Corps pay a 1.5% tax on net income (minimum $800). The pass-through benefit is reduced compared to federal treatment.
VC Funding and S-Corps Don't Mix
VCs typically invest via preferred stock, which violates the single-class-of-stock requirement. If seeking VC, plan to revoke S-Corp status or start as C-Corp.
Redomestication: Moving to a Different State
Change your entity's state of incorporation without dissolution. Most common: California to Delaware for VC-backed startups.
| From State | To State | Method | Complexity |
|---|---|---|---|
| California Corp | Delaware Corp | Merger or Conversion | Moderate |
| Delaware Corp | California Corp | Merger (rare) | Uncommon |
| California LLC | Delaware LLC | Domestication or Merger | Moderate |
| Wyoming LLC | Delaware LLC | Domestication | Simple |
Choose Your Method: Merger vs. Conversion
Two primary methods exist: (1) Form new entity in target state and merge, or (2) Use statutory conversion if both states permit.
Conversion: Simpler paperwork, same EIN, not available in all state combinations
Obtain Required Approvals
Board approval and shareholder consent required. If you have investors, review your stockholders agreement for special consent requirements.
Shareholders: Majority typically required
Investors: May have protective provisions requiring consent
File in Both States
File merger/conversion documents in both the old and new state. Coordinate timing so both filings are effective simultaneously.
Delaware: Certificate of Merger/Conversion + Certificate of Incorporation
Total fees: Approximately $500-$1,000 in filing fees
Update All Records
Update stock certificates, corporate records, bank accounts, contracts, and state registrations.
Contracts: Notify counterparties of surviving entity
California: May need to qualify as foreign corp if still operating in CA
Same EIN, Same Contracts
Properly executed redomestication preserves your EIN, contracts, licenses, and bank accounts. The entity continues without interruption—only the state of incorporation changes.
Still Need CA Qualification
If you redomesticate to Delaware but continue operating in California, you must register as a foreign corporation in CA. You'll pay taxes in both states.
Dissolution and Reformation Alternative
Sometimes dissolving the old entity and forming a new one is simpler than conversion. This "dissolve and reform" approach has tradeoffs.
Advantages of Dissolve & Reform
Clean slate: New entity has no legacy issues
Simpler paperwork: Standard formation documents
Flexibility: Can change anything (name, structure, state)
Disadvantages of Dissolve & Reform
Contract assignment: Must assign all contracts individually
New EIN: May need new employer ID number
Licenses: Must reapply for permits and licenses
Bank accounts: Must open new accounts
Tax implications: May trigger taxable liquidation
| Factor | Statutory Conversion | Dissolve & Reform |
|---|---|---|
| EIN | Preserved | New Required |
| Contracts | Continue automatically | Must assign |
| Licenses/Permits | Usually transfer | Reapply |
| Bank Accounts | Keep existing | Open new |
| Tax Treatment | Often tax-free | May be taxable |
| Paperwork | More complex filing | Standard forms |
Tax Implications of Entity Conversions
Tax treatment varies dramatically depending on the type of conversion. Some are tax-free; others can trigger significant tax liability.
| Conversion Type | Federal Tax Treatment | Key Considerations |
|---|---|---|
| LLC (partnership) → C-Corp | Tax-free | IRC §351 applies if done correctly |
| LLC (disregarded) → C-Corp | Tax-free | Treated as contribution to new corp |
| LLC → S-Corp election | Generally tax-free | Check election with IRS Form 8832 + 2553 |
| C-Corp → LLC | Potentially taxable | Treated as liquidation—gain recognized at both levels |
| S-Corp → LLC | Usually tax-free | No gain if distributed assets equal basis |
| C-Corp → S-Corp election | No immediate tax | Built-in gains tax for 5 years |
| S-Corp → C-Corp revocation | No immediate tax | 5-year waiting period to re-elect S |
| CA Corp → DE Corp (merger) | Tax-free | Qualifies as tax-free reorganization |
C-Corp to LLC: Tax Trap
Converting a C-Corp to an LLC is treated as a complete liquidation. The corporation recognizes gain on appreciated assets, then shareholders recognize gain on the distribution. This double taxation makes C-Corp to LLC conversions rarely advisable.
Built-In Gains Tax
When a C-Corp elects S-Corp status, any appreciation that existed at conversion is subject to "built-in gains tax" if sold within 5 years. This prevents avoiding C-Corp tax by converting before a sale.
California Tax Considerations
California generally follows federal treatment but has quirks. S-Corps pay 1.5% tax on net income. LLCs pay $800 minimum + LLC fee based on total income. Model your specific situation before converting.
Frequently Asked Questions
Standard Secretary of State processing is 3-5 business days. Expedited processing (24-hour) is available for an additional fee. The entire process including preparation, approvals, and post-conversion updates typically takes 2-4 weeks.
Yes. California requires consent from all LLC members (or as specified in your operating agreement). All members must sign the certificate of conversion or provide written consent. If any member objects, the conversion cannot proceed.
For statutory conversions (filing conversion documents), you typically keep the same EIN. For dissolve-and-reform scenarios, you'll need a new EIN. The IRS requires new EINs when an entity is legally terminated and a new one formed.
You have two options: (1) Elect to have the LLC taxed as an S-Corp (file Form 8832 + Form 2553) while remaining an LLC legally, or (2) Convert the LLC to a corporation and then elect S-Corp status. Option 1 is simpler and preserves LLC flexibility.
With statutory conversion, contracts automatically transfer to the converted entity. No assignment is needed. With dissolution and reformation, you must assign each contract to the new entity, and counterparties may have the right to consent or object.
It depends. If you're seeking VC funding, most investors strongly prefer Delaware. If you're bootstrapped and CA-only, the added complexity and cost of dual registration may not be worth it. See our Delaware vs. California guide for a detailed comparison.
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