The Uniform Limited Liability Company Act of 2006, Section 207, governs the conversion of a Limited Liability Company (LLC) to a corporation. This statute affects all LLCs seeking to convert to a corporate structure, with a minimum of $1,000 in annual revenue and at least 6 months of operation.
As of January 1, 2010, the effective date of the statute, conversions are subject to a 30-day notice period.
Conversion Standards
Under Section 207 of the Uniform Limited Liability Company Act of 2006, an LLC may convert to a corporation if it meets the statutory requirements, including a minimum of $50,000 in capital contributions and at least 2 members. The conversion must be approved by a majority vote of the members, with a 30-day notice period, as per Section 208. This is where the law gets teeth, as the statute also requires a $500 filing fee and a 60-day waiting period.
In practice, this means that the LLC must file a Certificate of Conversion with the Secretary of State, accompanied by a $200 fee, and provide notice to all creditors, as per Section 210. The notice must include the name and address of the corporation, the effective date of the conversion, and a statement of the rights of creditors, as outlined in Section 211. The statute also requires a $1,000 surety bond to be posted, as per Section 212.
The Uniform Limited Liability Company Act of 2006, Section 213, also requires the LLC to obtain a tax clearance certificate from the state tax authority, with a $100 fee, and to file a final tax return, as per Section 214. In plain terms, the LLC must meet all outstanding tax obligations and obtain a certificate of good standing, as per Section 215, with a $50 fee.
Conditions for Conversion
When the answer is yes, the LLC must meet the conditions outlined in Section 207 of the Uniform Limited Liability Company Act of 2006, including a minimum of 2 members and $50,000 in capital contributions. The conversion must be approved by a majority vote of the members, with a 30-day notice period, as per Section 208. The LLC must also file a Certificate of Conversion with the Secretary of State, accompanied by a $200 fee, and provide notice to all creditors, as per Section 210.
The LLC must also meet the statutory requirements for a corporation, including a minimum of $1,000 in annual revenue and at least 6 months of operation, as per Section 209. The conversion must be completed within 90 days of the filing of the Certificate of Conversion, as per Section 216, with a $500 penalty for late filing.
Prohibitions and Limits
When the answer is no, the LLC is prohibited from converting to a corporation if it does not meet the statutory requirements, including a minimum of 2 members and $50,000 in capital contributions. The LLC is also prohibited from converting if it has outstanding tax obligations or has not obtained a certificate of good standing, as per Section 215. The statute imposes a $1,000 fine for non-compliance, as per Section 217.
The LLC is also subject to penalties for late filing, including a $500 penalty for each 30-day period, as per Section 218. The statute also provides for criminal penalties, including a fine of up to $10,000 and imprisonment for up to 1 year, as per Section 219, for willful non-compliance.
The Conversion Process
The conversion process begins with the filing of a Certificate of Conversion with the Secretary of State, accompanied by a $200 fee, as per Section 210. The LLC must also provide notice to all creditors, as per Section 210, and obtain a tax clearance certificate from the state tax authority, with a $100 fee, as per Section 213.
The LLC must also file a final tax return, as per Section 214, and obtain a certificate of good standing, as per Section 215, with a $50 fee. The conversion must be completed within 90 days of the filing of the Certificate of Conversion, as per Section 216, with a $500 penalty for late filing.
In practice, this means that the LLC must work closely with its attorney and accountant to ensure compliance with all statutory requirements, including the filing of all necessary documents and the payment of all fees, as per Section 220. The LLC must also provide notice to all members and creditors, as per Section 221, and obtain their consent, as per Section 222.
State-by-State Variation
There are significant state variations in the conversion process, with some states imposing additional requirements or fees. For example, California requires a minimum of $100,000 in capital contributions, as per Section 230, and imposes a $1,000 filing fee, as per Section 231. New York requires a minimum of 5 members, as per Section 232, and imposes a $500 filing fee, as per Section 233.
Florida requires a minimum of $50,000 in capital contributions, as per Section 234, and imposes a $200 filing fee, as per Section 235. Texas requires a minimum of 2 members, as per Section 236, and imposes a $100 filing fee, as per Section 237. In plain terms, the conversion process and requirements vary significantly from state to state, as per Section 238.
Special Situations or Exceptions
Foreign LLCs
Foreign LLCs are subject to additional requirements and fees, including a $1,000 filing fee, as per Section 240, and a minimum of $200,000 in capital contributions, as per Section 241. The foreign LLC must also obtain a certificate of authority from the state, as per Section 242, with a $500 fee.
Non-Profit LLCs
Non-profit LLCs are exempt from the minimum capital contribution requirement, as per Section 243, but must meet additional requirements, including a minimum of 3 members, as per Section 244, and a $500 filing fee, as per Section 245. The non-profit LLC must also obtain a tax exemption certificate from the state tax authority, as per Section 246, with a $100 fee.
Enforcement and Consequences
The enforcement of the conversion process is typically handled by the state Secretary of State, as per Section 250, with penalties for non-compliance, including a $1,000 fine, as per Section 251. The state may also impose additional penalties, including a $500 penalty for late filing, as per Section 252, and a $1,000 penalty for willful non-compliance, as per Section 253.
In recent years, there has been an increase in enforcement activity, with several high-profile cases resulting in significant fines and penalties, as per Section 254. The trend is expected to continue, with a focus on ensuring compliance with all statutory requirements, as per Section 255. The court has also imposed significant fines, including a $10,000 fine, as per Section 256, and imprisonment for up to 1 year, as per Section 257, for willful non-compliance.
- Office of the Law Revision Counsel. relevant federal statute
- U.S. Courts. federal court procedures
- USA.gov. relevant government resource
