How do I handle converting LLC to C-Corp for funding?

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Started by ComplianceOfficer_32 · Oct 23, 2024 · 371 views · 3 replies
For informational purposes only. This is not legal advice. Laws vary by jurisdiction. Consult a qualified attorney for advice specific to your situation.
CO
ComplianceOfficer_32 OP

I'm dealing with a situation and need some guidance.

converting LLC to C-Corp for funding. I've been dealing with this for about 7 weeks now and the situation isn't improving.

I have already consulted briefly with a lawyer but the other party is not cooperating.

Should I hire a lawyer for this or try to handle it myself?

SM
smallbizhelp_18

You could try handling it yourself but honestly a lawyer speeds things up 10x honestly.

PA
practical_advice_18

This happened to me too. Have you tried filing a complaint with the relevant agency? In my case they investigated and it got resolved without needing a lawyer.

LE
LegalAssistKim_15

LLC to C-Corp conversion is routine but has several traps. Key considerations:

  1. Tax implications: A statutory conversion (available in most states) or merger into a new C-Corp can usually be done tax-free under IRC ยง 351 if structured properly. But if the LLC has appreciated assets or retained earnings, the conversion can trigger a taxable event. Get a tax attorney involved early.
  2. Equity conversion: LLC membership interests convert to shares. You'll need to establish authorized shares, par value, and a stock incentive plan (typically 10-15% option pool for the Series Seed).
  3. Contracts and licenses: Review all existing contracts for change-of-control or anti-assignment provisions. Some may need counterparty consent.
  4. IP assignment: Ensure all intellectual property is properly assigned from the LLC to the new Corp (or confirmed as surviving the conversion).
  5. 83(b) elections: If founders receive restricted stock in the new Corp, they have 30 days to file an 83(b) election. Miss this deadline and the tax consequences can be severe.

Timeline: budget 4-6 weeks. Investors will want the conversion complete before funding closes.