Conversion of Business Entities

Conversion? “Yes, thank you.”

One of the definitions in my Webster’s New World Dictionary for the word “convert” is: “to change from one religion, doctrine, etc., to another.” Wow, but did you know that a California LLC may be “converted” into “an other” business entity? Yup, it’s true:

An LLC may be converted into an other business entity or a foreign other business entity, or a foreign LLC if, pursuant to a conversion into a domestic or foreign general partnership or limited partnership or into a foreign LLC, each of the members of the converting LLC will receive a percentage interest in profits and capital of the converted entity equal to that member’s percentage interest in profits and capital of the converting limited liability company as of the effective time of the conversion. What a mouthful, I know!

An LLC may be converted into an other business entity or a foreign other business entity other than a general or limited partnership or foreign LLC if both of the following occur:

*Each of the membership interests of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted entity, unless all members of the class consent; and

*The nonredeemable membership interests of the converting LLC are converted only into nonredeemable interests or securities of the converted entity, unless all holders of the nonredeemable interests consent.

We had a client recently come to our office seeking precisely such a “conversion.” And let me tell you, the fun did not stop there! We had to figure out whether the newly converted entity needed to apply for a new EIN (Employer Identification Number), and what tax returns would need to be filed by both the old CONVERTED-OUT entity, and the NEWLY CONVERTED entity. Holy tax compliance headaches Batman! Well, we’ve sorted it through it all now so let us know if you need any help in this area.

Keep rocking!

-Lawdog