LLC conversion to C-corporation
Statutory conversion of a Delaware LLC into a Delaware C-corporation, typically for VC fundraising.
Definition
LLC-to-C-corp conversion under 6 Del. C. § 18-211 and 8 Del. C. § 266 allows a Delaware LLC to convert to a Delaware C-corporation. Common when raising VC (which generally requires C-corp structure). Tax implications can include gain recognition.
Context
Many VC-backed startups start as LLCs (lower formation/maintenance cost) and convert to C-corp at first priced equity round.
Example
A SaaS startup operates as Delaware LLC for 18 months bootstrapping. At Series Seed, the LLC converts to Delaware C-corp. Members become shareholders pro rata.
Common pitfalls
- Tax consequences can be significant; engage tax adviser before conversion.
- QSBS (Qualified Small Business Stock) timing matters; conversion may affect QSBS clock.
- Operating Agreement must be replaced with corporate bylaws and stockholders agreement.