Ohio entity conversion: changing an LLC or corporation's form

What is an entity conversion in Ohio?

A statutory conversion changes a company's legal form while keeping it the same business. Without one, switching from an LLC to a corporation would mean forming a new corporation, moving every asset and contract into it, and dissolving the LLC. A conversion skips the move.

ORC 1706.723 spells out what happens when an LLC is part of a conversion:

• All property of the converting entity remains vested in the converted entity.
• Debts, obligations, and liabilities continue as obligations of the converted entity.
• Pending lawsuits by or against the company continue as if the conversion had not happened.
• The converting entity does not have to wind up, and the conversion is not a dissolution.
• Property and liabilities are not treated as assigned to the converted entity because of the conversion.
• When the result is an LLC, it is the same entity as before, and its existence dates from when the converting entity was first formed.

Corporations have a parallel provision on the legal effect of a conversion in ORC 1701.821. The practical point is the same: the company changes its form, not its identity.

Why Ohio businesses convert from one entity type to another

Conversions usually follow a change in the business, not a change in the law. The common triggers:

• Investors. Outside investors and lenders sometimes want to buy shares in a corporation rather than membership interests in an LLC, so a growing LLC converts before a funding round.
• Simplicity. A small corporation with a handful of owners may want the flexibility of an operating agreement and fewer formalities, so it converts to an LLC.
• Moving the company's home. Owners who formed in another state and now operate only in Ohio may want one Ohio entity instead of a foreign registration plus a home-state entity.
• Leaving Ohio. A company whose owners and operations have moved elsewhere may convert into an entity of the new state.
• Cleaning up an old structure. A professional association or older corporation may no longer fit how the owners run the business.

Before you commit to a conversion, make sure the goal actually needs one. A different tax treatment, a new name, or a new owner can each be handled without changing the entity's form. A name change is an amendment, a new owner is an admission or share transfer, and tax treatment is often an IRS election.

Which entity conversions does Ohio allow?

Each side of a conversion has to be permitted by its own governing law. Ohio's main conversion statutes are:

Nonprofit corporations are left out of the for-profit corporation conversion sections, so a nonprofit considering a change of form needs an attorney from the first conversation.

Out-of-state companies converting into Ohio

Ohio's statutes do not use the word "domestication," but a company from another state can convert into an Ohio LLC or corporation if its home state's law allows it to convert out. The result is an Ohio entity, and the out-of-state entity no longer exists in its old form. The other direction works too: an Ohio entity can convert into an entity of another state, which takes it off Ohio's records as a domestic company.

If you only want to do business in Ohio while staying a Delaware or Michigan company, you do not need a conversion. Registering as a foreign entity is simpler; see Ohio foreign LLC registration.

Ohio conversion forms and the state filing fee

The Secretary of State uses two certificate of conversion forms, depending on which way the company is moving relative to Ohio's records:

ORC 111.16(D) sets the fee at $99 for filing a certificate of conversion, including a designation of agent. When the converted entity is a new Ohio entity, its formation documents are filed with the certificate. ORC 1706.722(A)(2) requires a company converting into an Ohio LLC to file articles of organization that also state what it converted from and that the conversion was approved as its governing statute requires. ORC 1701.811(B)(2) requires the same kind of package when the result is a new Ohio corporation, LLC, or partnership.

What the certificate of conversion says

• The name, entity type, and governing state of the converting entity
• A statement that the converting entity complied with its governing law and that the law permits the conversion
• The name and mailing address of the person who will provide a copy of the declaration of conversion to an owner who asks
• The effective date, which may be on or after the filing date
• The name, entity type, and governing state of the converted entity
• Signatures of authorized representatives

That list comes from ORC 1701.811(B)(1). When an Ohio corporation is the converting entity, ORC 1701.811(B)(4) also requires the tax evidence a dissolving corporation files under ORC 1701.86(H), such as a certificate from the Department of Taxation and evidence on unemployment contributions from the Department of Job and Family Services. Plan for that step early; it is the one most likely to cause delay.

Who has to approve an Ohio conversion?

LLCs

ORC 1706.721(A) requires a declaration of conversion to be consented to by all the members of a converting LLC. ORC 1706.73 adds a protection: if a member will have personal liability in the converted entity, the conversion is ineffective without that member's consent, unless the operating agreement allows approval by fewer than all members and that member agreed to that provision. Check your operating agreement with your attorney before assuming the vote you need.

Corporations

Under ORC 1701.792(D) and (F), the directors must approve the declaration of conversion, and the shareholders must adopt it at a meeting held for that purpose. The default vote is two-thirds of the voting power, or a different proportion set in the articles, but not less than a majority. Some classes of shares may get a separate class vote.

Shareholders who object may have dissenters' rights. ORC 1701.85 provides a procedure for a dissenting shareholder to seek the fair cash value of their shares, and it expressly covers conversions. Shareholder notices and timing are technical; this is attorney work.

What goes into the declaration of conversion

The declaration of conversion is the internal document the owners approve. It is not the same as the certificate filed with the state. Under ORC 1706.72(B), an LLC's declaration must include:

• The name and form of the entity before and after the conversion
• The terms and conditions of the conversion, including how each owner's interest becomes money, interests in the converted entity, or other consideration
• The organizational documents of the converted entity, such as the new articles and code of regulations, or the new articles of organization and operating agreement

A corporation's declaration under ORC 1701.792(B) covers similar ground. It also carries a solvency limit: no conversion or substitution may be made if there are reasonable grounds to believe it would leave the converted entity unable to pay its obligations as they come due.

The declaration is where the economics of the deal get decided. If three LLC members with unequal capital accounts are becoming shareholders, the declaration is what sets how many shares each receives.

Tax questions to settle before you convert

State law and federal tax law treat conversions separately. A conversion that Ohio treats as the same continuing company can still have federal tax consequences, depending on the forms involved. Settle these with your accountant before the owners vote:

• Do you need to convert at all? The IRS lets an LLC elect to be taxed as a corporation on Form 8832, or as an S corporation on Form 2553, without changing its state-law form.
• Does the converted entity need a new EIN? The IRS says a corporation that converts at the state level without changing its business structure does not, but its list does not cover every conversion.
• Will the conversion trigger tax on built-up value in the company's assets?
• If an S election is in place, will every new owner be an eligible shareholder?
• Which state tax accounts must be closed, opened, or updated?

If the only goal is a different tax treatment, the S corp election service may get you there without a conversion. If you do need a new tax ID afterward, our EIN service can file it.

Conversion vs. merger vs. forming new and dissolving

Conversion is usually the cleanest route when the owners stay the same and only the form changes. A merger fits when entities are combining. Forming new and dissolving is the slowest but sometimes chosen when the owners want a fresh entity without the old one's history. Our Ohio dissolution service and business formation service handle those filings if that is the route your attorney recommends. For help choosing a form in the first place, see Ohio corporation vs. LLC.

What to update after the conversion is filed

• Name: the converted entity's name must meet the naming rules for its new form, so update signage, invoices, and your website to match the filed name.
• Governing documents: adopt the operating agreement or code of regulations approved in the declaration, and issue shares or record membership interests.
• Bank accounts: bring the filed certificate to your bank and update the account title and signers.
• Contracts: the conversion does not count as an assignment under ORC 1706.723(A)(7), but read contracts for change-of-form or notice clauses anyway.
• Licenses, permits, and tax accounts: ask each agency whether it needs notice or a new registration.
• IRS: follow your accountant's advice on the EIN and the first return in the new form.

The converted entity must also keep an Ohio statutory agent, and the agent designation is filed with the certificate. Many companies keep the same agent, and a conversion is a good moment to confirm the agent's name and address on file are still right. Changing agents afterward is a Statutory Agent Update (Form 521, $25), which we prepare and file for clients after they sign the consent. Our Ohio statutory agent service is $49 per business per year.

When to involve an attorney in an Ohio conversion

For most conversions, from the start. The filing itself is short, but the declaration of conversion sets every owner's new stake, the approval rules differ between LLCs and corporations, and dissenting shareholders have statutory rights. An attorney should draft or review the declaration and the new governing documents. An accountant should sign off on the tax treatment before anyone votes. Bring both in early if the company has outside investors, an S election, real estate, regulated licenses, or a lender whose loan documents restrict changes in form. We do not give legal or tax advice.