How to Convert a California LLC to a Delaware LLC?
According to California and Delaware laws and regulations, a California LLC can be converted into a Delaware LLC if necessary. This is essentially the process of converting an LLC that incorporated in California to Delaware. This article will briefly introduce the benefits of converting a California LLC to a Delaware LLC, the conversion under what situation, the materials and procedure required for conversion, and the results after conversion.
Compared to California, Delaware offers the following benefits to LLCs:
- When an LLC is established in California and sells goods to California customers, the company is subject to sales tax. Delaware does not levy sales tax on LLCs.
- When an LLC is established in California and has items such as furniture and equipment used to operate the business, the company is subject to business personal property tax. Delaware does not impose business personal property taxes on LLCs.
- California LLCs are required to pay at least an $800 fee per year. Delaware LLCs generally only need to pay a fee of $300.
Members may consider converting an LLC from California to Delaware in the following situations:
- Members of a California LLC move from California to Delaware.
- The LLC is incorporated in California, but the principal business activity is in Delaware.
- The primary supplier to the California LLC moved from California to Delaware.
- Compared with California, Delaware can provide a more friendly business environment for LLC.
Converting a California LLC to a Delaware LLC requires the preparation of the following four documents:
- At the California level, LLCs are required to complete the California Conversion Form Conv-1A. The form mainly includes the basic information of the LLC before and after the conversion. Such as the name of the company before and after the conversion, the postal address after the conversion, the date of the conversion, and the signature of the person in charge.
- At the Delaware level, LLCs need to fill out the out-of-state transfer to Delaware form "Non-DE LLC to DE LLC". This form mainly includes the basic information of the LLC before and after the conversion. For example, the company name before and after the conversion, the registration time of the original company before the conversion, the signature of the person in charge, etc.
- Draft a plan for the conversion of a California LLC to a Delaware LLC.
- Draft an operating agreement for a Delaware LLC.
Converting a California LLC to a Delaware LLC generally follows the following process:
- LLCs are required to use a registered agent to provide this process service. A registered agent can be an individual or a company.
- The members of the California LLC agree and sign the drafted conversion plan and new operating agreement.
- For California, complete and sign Form Conv-1A.
- For Delaware, complete and sign the form "Non-DE LLC to DE LLC".
- Submit the above two completed forms to the appropriate California and Delaware government.
- Pay required fees to the California and Delaware government.
- Maintain communication with the state government, answer relevant questions and provide other necessary information.
After the California LLC is converted to a Delaware LLC, the below maintenance requirements need to be followed:
- The converted Delaware LLC can continue to use the original California LLC federal tax identification number but may need to update the address and incorporated state information with the IRS.
- After the conversion, the converted LLCs need to file annual tax returns and annual renewal reports to the Delaware government. The LLCs will be no longer required to file tax returns and annual renewal reports with the California government.
- After the conversion, the LLC is required to pay the Delaware $300 a year. LLCs do not have to pay at least $800 franchise tax per year to the California.
Reference:
https://www.fortenberrylaw.com/llc-domestication-checklist/
https://www.fortenberrylaw.com/llc-domestication/
https://incparadise.net/delaware/moving-business-to-delaware/
https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein
https://bpd.cdn.sos.ca.gov/corp/pdf/obeconv.pdf
https://corpfiles.delaware.gov/Non-DE%20LLC%20to%20DE%20LLC16.pdf |
