The 10 Steps For Converting Your California LLC To A Delaware Corporation

This articles was originally published on Forbes.

By: Doug Bend and Robin O’Donnell

Most startup founders form a Delaware C corporation as it is the preferred legal entity of most investors. However, some founders instead form a California LLC when they expect to have losses their first few years and would like for those losses to flow down to schedule C of their individual tax return to offset other income.

Once the company has gained traction and is ready to raise outside venture capital financing, the founder might then convert the LLC to a Delaware corporation by completing the following 10 steps:

1. Member Approval

A plan of conversion will need to be approved by the members of the converting LLC.

2. Filings with California and Delaware Secretary of State’s Office

Separate conversion filings will be required in both California and Delaware. In addition, a Certificate of Incorporation must be filed in Delaware.

3. Internal Documents

Once the conversion filings have been approved, you will need to prepare all of the internal documents for the corporation such as the bylaws, stock purchase agreements, indemnification agreements and the initial Board consent.

4. City Business Registration Certificate

In addition to the internal documents, you will need to update the city business license to include the new legal name of the entity.

5. Fictitious Business Name Statement

If will be conducting business under a name other than the full legal name of the corporation, you will need to file a new Fictitious Business Name Statement with the county clerk’s office.

6. Publication of the Fictitious Business Name Statement

Once you get the endorsed Fictitious Business Name back from the county clerk’s office, you will need to have it published in a legally adjudicated newspaper.

7. California Employment Development Department

If your company is running payroll for employees, you will need to update the Employment Development Department (EDD) of the entity conversion.

8. Seller’s Permit

If your company collects sales tax, you will need to update the company’s account with the California Department of Tax and Fee Administration. If you have any trouble, you can call the Department at 1-800-400-7115 and they will walk you through the process.

9. IRS

You will need to work with your CPA to update the IRS on the conversion. You can read more here on whether you will need to get a new Federal Employer Identification Number (EIN).

10. Vendors

Lastly, you will need to update the company’s vendors on the entity conversion. For example, you will need to update the company’s bank account and insurance policies to include the new legal name of the corporation.

You should consult with your attorney as your company might have different requirements and with your CPA to make sure that you understand the tax ramifications of converting your California LLC to a Delaware corporation, but this checklist is a good starting point for putting together a game plan for the conversion. As you can see, several government agencies and vendors would need to be updated, so you should make sure that the benefits of making the conversion will outweigh the time and costs.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.