Current law restricts California LLCs from converting into Delaware LLCs; however, beginning on January 1, 2023 this transition will become possible under SB 49.
Converting from California to Delaware corporations involves an intricate process known as redomestication.
Redomestication involves the transfer of assets from one California corporation to a Delaware corporation, provided both states agree on terms for this change.
Availability of the Company Name
If you are transitioning your California LLC to Delaware LLC status, performing a name availability check will give the best chance of registering the desired legal name and avoid costly disputes between businesses.
As one of the main advantages of incorporating your California LLC in Delaware is keeping its name confidential, this can protect both your personal assets as well as safeguard them in case someone attempts to take them from you.
Delaware not only protects your company from personal liability, but its incorporation process is easy, affordable, and low cost – drawing many high-profile businesses like Google and Coca-Cola into its fold. It has even earned itself the moniker “Incorporation Capital of America.”
Registered Agent Requirements
If you are transitioning from California LLC to Delaware LLC, appointing an Agent for Service of Process is mandatory. This person will accept legal mail (known as Service of Process) on behalf of your company in case it gets sued.
Registered Agents may be individuals or business entities who accept legal notices on your behalf and make themselves available during regular business hours, without being offended if their address becomes public record.
Or you could hire an LLC registered agent service in Delaware to fulfill this important function for you. These providers should have physical offices within the state and be capable of meeting time-sensitive demands of this task.
There can be various reasons for converting from a California LLC to a Delaware LLC, including growth and expansion as well as wanting more limited liability protection.
Filing Fees
If your California corporation needs to convert into a Delaware LLC, several steps must be taken in order to do so successfully. First and foremost is creating a conversion plan and operating agreement.
Once completed, it’s important to file the conversion with both California and Delaware governments, update state records accordingly and inform insurers, banks and any other parties involved in your business of the conversion.
Conversion can be an efficient and cost-effective method of moving a business between states, as it requires no paperwork and allows the LLC to maintain their EIN, which is key for filing taxes.
Before making the conversion, it is vital to consult both your CPA and business attorney in order to make the appropriate decision for your company. For instance, converting into a Delaware corporation could help startup looking to raise outside investment capital while offering equity incentives can be an effective strategy.
Taxes
Based on your company’s tax structure, it may make more sense to form your LLC in Delaware instead of California. Delaware boasts low taxes and has efficient court systems for legal actions against businesses located here.
Delaware provides you with an option to protect the privacy and confidentiality of your ownership information, which can be hugely advantageous if you’re an emerging or small business looking to avoid being listed publicly in public records.
Converting to a Delaware LLC is often recommended for startups. Doing so allows them to maintain EINs, bank accounts and existing business relationships without experiencing disruptions in service delivery.
Converting from an LLC to a Delaware entity involves filing several documents in Delaware; including: the plan of conversion, Articles of Organization (Form LLC-1A), and certificate of conversion. Typically this process costs several thousand dollars so it is important that you consult both with your CPA and attorney prior to choosing a path for your company.
