Entity conversion refers to when an entity changes from one entity type to another within a state (e.g., a Washington LLC to a Washington corporation) or when an entity changes its “home state” (e.g., a Delaware LLC to a Washington LLC). Washington law specifies requirements for converting an entity within the state. This post considers both the statutory basis for conversion in Washington as well as a general process to follow to convert an entity.
Entity Conversion Statutes in Washington State
Generally, the Revised Code of Washington (RCW) has separate sections governing corporations and limited liability companies, namely, Title 23B and Title 25, respectively. Each section sets forth the requirements for conversion. For example, if one were to convert an LLC to a corporation, then RCW 25.15.436 sets forth the statutory requirements for the conversion. Such a statute might specify requirements for a conversion to be effective, for example, RCW 25.15.436 states:
- The conversion is pursuant to a plan of conversion
- The converting organization’s governing statute authorizes a conversion
- The converting organization follows its governing statute
Points two and three might require one to look to the governing statutes of other states, for example, if one were converting a Delaware LLC to a Washington LLC, the Delaware statute governing LLCs would have to authorize conversion and any requirements followed.
The statute sets forth additional requirements to be included in the plan of conversion:
- The name and form of the organization before conversion
- The name and form of the organization after conversion
- The terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of interests, shares, obligations, or other securities of the converted organization or any other organization or into cash or other property in whole or part
- The organizational documents of the converted organization
So the plan of conversion includes specific information and the actual organizational documents of the to be converted entity.
The Entity Conversion Process
Conversion is generally a three-step process. First, prepare the conversion documents. Second, the approve the conversion. Third, make the filings.
Step One: Prepare the Conversion Documents
The conversion documents include the plan of conversion, the state conversion filing, a filing for the origin state (if applicable), and various organizational documents. What to include in the plan of conversion is specified by statute. As mentioned above, RCW 25.15.436 specifies requirements for a plan of conversion. So depending upon state law, a plan of conversion should include the required plan components to be effective.
Other state filings vary by state. The filings generally include a form specifying the entity type, the jurisdiction, and agent contact information of the entity converting from the state.
Since, practically, conversion results in the formation of a new entity in the converting state, formation filings accompany the converting state conversion filings. For example, Articles of Incorporation might accompany an Articles of Entity Conversion filing in Washington resulting in a converted Washington corporation.
Step Two: Formally Approve the Conversion
The next step is to have the converting entity formally approve, internally, the plan of conversion and related documents. This is a necessary step in order to create a record of the action taken properly.
Step Three: Make the Conversions Filings
The last step is to make the filings. This is in the “converting from” and “converting to” state (which may be the same state).
Contact Foundry Law Group About Entity Conversion
Conversion can be deceptively complex. We have worked on a variety of different conversions and can advise on your entity conversion. Please contact us today to learn more about how we might assist in your corporate conversion.