Businesses who intend to seek venture capital investment often choose to be a Delaware Corporation. Why? According to Delaware.gov, “More than one million business entities take advantage of Delaware’s complete package of incorporation services, including modern and flexible corporate laws, our highly-respected Judiciary and legal community, a business-friendly government, and the customer-service-oriented staff of the Division of Corporations.” If you formed your business as an LLC (in any state) you can convert to a Delaware corporation without needing to dissolve your existing LLC.
Here are some reasons why businesses choose Delaware:
- Business-Friendly Laws: Delaware’s legal framework is designed to be friendly to businesses.
- Experienced Court System: The state boasts the renowned Court of Chancery, which specializes in corporate law.
- Privacy Perks: Delaware offers a level of privacy that other states don’t.
- Tax Benefits: Delaware’s tax structure is incredibly favorable for corporations.
Here are the key things to know:
- Check state rules – Make sure your LLC’s home state permits entity conversion. If it does, Delaware can allow for seamless conversion if your LLC’s state does, too.
- LLC formalities – Even if it is a single member LLC, you still need to follow the rules of your LLC governing documents and state LLC laws. For example, you’ll need consent from the LLC’s members and/or managers, as applicable and as required in the LLC’s governing documents.
- File the right documents – Submit the necessary forms with your home state and Delaware’s Secretary of State to complete the conversion. You must file with both states.
- Corporate formalities – Once converted, you comply with Delaware and new federal corporate requirements like bylaws, organizational resolutions and BOI reports.
Conversion can impact taxes, contracts, and more. Always consult with legal and tax professionals to avoid potential pitfalls.
Please note- If you do not have any assets or material contracts with the LLC, another option is to simply start fresh with a new Delaware corporation.
Content provided by member organization Padilla Law, PLLC
