Converting a Delaware LLC to a Delaware C-Corp: when and how

Why founders convert

VC fundraising: most US venture capital firms require Delaware C-Corp structure for portfolio investments. Standard term sheets, SAFEs, and equity-financing documents assume C-Corp.

Hiring US-resident employees with stock options: equity grants are simpler in a C-Corp structure than an LLC. ISO and NSO option mechanics work cleanly in C-Corps.

Future-proofing for IPO: C-Corp is the default US public-company structure.

How conversion works mechanically

File Certificate of Conversion with the Delaware Division of Corporations ($164 state fee). File Certificate of Incorporation simultaneously ($109 state fee). Adopt new bylaws and stock structure. Members of the LLC become stockholders of the corporation.

The converting entity retains the same EIN (the IRS treats it as the same entity for federal tax purposes in most cases, but specific facts matter).

Tax implications and pitfalls

Conversion can be a taxable event under IRC § 351 and related rules; specific facts determine whether gain is recognized. Engage a US tax adviser before converting.

Operating Agreement provisions may need to be unwound or assigned to the new entity. Capital accounts and ownership percentages translate to share ownership; ensure the translation matches member intent.

Once converted, the entity files Form 1120 instead of operating as a pass-through. The federal corporate tax rate is 21%; dividends to non-resident owners face withholding.