As a business evolves, its initial legal structure may no longer be the best fit for its future goals. Entity type conversion is the formal legal process of changing your company's structure from one type to another, for example, from a Limited Liability Company (LLC) to a C-Corporation.
This is a significant strategic decision that can unlock new advantages, such as the ability to attract investors or optimize your tax situation. Dappr offers a service to handle the complex legal paperwork required for an entity conversion, ensuring the process is managed correctly.
Why convert your business entity type?
While many businesses start as LLCs due to their simplicity and flexibility, there are compelling reasons why a company might choose to convert to a different structure, most commonly to a C-Corporation.
The primary driver for converting from an LLC to a C-Corporation is often fundraising and growth.
Attracting Venture Capital: Most venture capital (VC) firms and institutional investors are structured to invest only in C-Corporations. This is because C-Corps can issue different classes of stock (like preferred stock), which is a standard requirement for VC investments. An LLC's ownership structure (membership units) is not compatible with this model. If your long-term plan includes raising significant outside capital, a conversion is almost always necessary.
Issuing Stock Options: C-Corporations can easily create and manage employee stock option plans (ESOPs). Offering stock options is a powerful tool for attracting and retaining top talent, especially in the competitive tech industry. While LLCs can offer "profits interests," these are more complex to administer and are often less appealing to potential employees.
Tax Advantages for Reinvestment: C-Corporations are taxed at the corporate level. If you plan to reinvest most or all of your profits back into the business to fuel growth, the C-Corp structure can sometimes be more tax-efficient than the pass-through taxation of an LLC, where profits are taxed at the owners' personal income tax rates regardless of whether they are reinvested.
Making the decision to convert is a major step that involves legal, financial, and tax considerations. It is essential to consult with legal and tax professionals to determine if and when a conversion is the right move for your specific business.
How to order the entity type conversion service
Once you have decided to proceed with a conversion, Dappr can manage the state filing process for you.
From the main menu, navigate to Business Records.
Select Legal and filing services from the top menu.
Click on the Filing services tab in the sub-menu.
Find the Entity Type Conversion service in the list and click the Order button.
You will be guided through a form to provide the necessary information for the conversion.
Complete the form and proceed to payment to finalize your order.
After you place your order, Dappr will prepare and submit all the required conversion documents with the state. You can track the status of your filing from your main Dappr dashboard and in the "Orders" tab of the Legal and filing services page.
Dappr is not a law firm or accounting firm, and this content is not legal or tax advice. An entity type conversion has significant legal and tax implications. We strongly recommend consulting with your legal and tax advisors before making this decision.