Reflecting Conversions and Re-Domestications in States Where Authorized to Do Business

What this is: All US states now have laws permitting entities to convert from one type to another. Additionally, many states allow re-domestication, enabling entities to maintain their type while changing their domestic state. 

What this means: After filing the conversion in the domestic state(s), companies registered in states other than where they were formed must update records in each foreign jurisdiction to reflect the new entity type and domestic state.

Statutory Conversion 

Every US state now has laws on the books that allow entities of one type to convert into entities of a different type, for example, allowing a limited liability company (LLC) to convert into a corporation. These statutory conversions can make the process of changing entity type simpler and allow a company to maintain its existence as it transitions to a new entity type that may provide it with business or tax advantages.  

Re-Domestication 

Many states also allow re-domestications, where the entity type remains the same but the domestic state changes. For example, a company that started out in Texas may decide that it makes good business sense to move its jurisdiction of formation to Delaware at a later point in its life.  

Changing Entity Type and Domestic Jurisdiction 

It is also possible to change both the entity type and the domestic jurisdiction under the conversion statutes in many states. However, it’s important to note that each state has different rules and in certain states, an entity may not be able to use statutory conversion to make the change it desires. For this reason and because changing the entity type can impact a company in a number of ways, including changing its tax obligations, it is important to discuss a plan to convert with an attorney first. 

Reflecting the New Entity Type and Domestic Jurisdiction 

For companies who have registered to do business in states other than where their company was formed, there is another important task to undertake after the conversion is filed in the domestic state or states. You will need to update the records in every state where the company is registered as a foreign entity so that the new entity type and domestic jurisdiction is accurately reflected. There are a number of different ways this gets handled, depending on the rules of the state, the types of entities involved and whether the jurisdiction is changing. Let’s take a closer look. 

Four Diverse Methods to Reflect Conversion in the Authorized State  

Most states require one of the following methods to reflect the conversion of a company into a different type of entity or the re-domestication to a new domestic jurisdiction or both. In some states, different methods are required depending on the entity type before and after the change. 

1. Specific Foreign Conversion Forms  

Some states have specific forms that pertain to this situation. For example, Alabama has “Foreign Conversion Filing,” which can be used when a foreign entity of one type converts into a foreign entity of a different type. However, it is not used when the entity type remains the same and only the domestic jurisdiction of the company was changed. Indiana has “Notice of Merger/Conversion,” which is used in all situations, whether the entity type has changed or only the domestic state has changed. If the converted entity will be continuing to do business in Indiana, the company must also file an Application for Authority to do business in Indiana. The latter is a common requirement when a state-specific form is used to reflect the conversion of an entity from one type to another. 

2. Evidence of Conversion and Qualification   

A number of states require the filing of evidence of the conversion or re-domestication along with an Application for Authority to qualify the converted entity to do business in the state. In some cases that evidence may be a certified copy of the filing; in other cases, a “Cert Re:” or State-Issued Certificate certifying the conversion filing must be provided. When the domestic state has changed, be sure to inquire whether the state requires the certified copy or Cert Re: to be issued by the old domestic state (the one prior to the change) or the new one.    

3. Amendment is Filed With or Without Supporting Documents  

In a number of states, the conversion or re-domestication can be reflected simply by amending the company’s foreign registration to do business in the state (often called the Application for Authority). States that have this process generally do not require the converted entity to re-qualify.   

4. Withdraw and Qualify  

Finally, there are a number of states where the entity will be required to formally withdraw the company which existed prior to the conversion and then file an Application for Authority to authorize the newly converted company to do business in the state. This can often be cumbersome, particularly when the withdrawal filing requires consent from other state agencies, such as the Department of Revenue. This process is required more frequently when the entity is changing entity type than when it is only changing its domestic state. 

Conversion Filing Nuances 

When determining what needs to be filed in a given state, it is important to understand that different conversion filings may require a different process, even in the same state. For example, if a Pennsylvania corporation qualified to do business in New York re-domesticates to become a Delaware corporation, an amendment to the Application for Authority can be filed. But, if a Pennsylvania LLC qualified to do business in New York re-domesticates to become a Delaware LLC, the LLC must withdraw and re-qualify as a Delaware LLC to reflect the change in New York. 

Conversion’s Effect on Annual Reports 

Whether it is the domestic state or the authorized state, in jurisdictions where the due date of the annual report is based on the entity type, a conversion means a change in due date will occur once the entity type is changed in the state. It is possible, in some cases, that the entity will need to file 2 annual reports depending on the date the conversion is reflected and the due dates for the different entity types. 

The Importance of Reflecting Conversions 

While ensuring that a company’s conversion is properly reflected in the authorized states can be time consuming, it is important that an entity takes the appropriate steps to ensure the records reflect correct and current information. Some states require that a company ensures that changes to the company’s name are reflected within a certain time frame (often 90 days) or are updated in a timely way. Additionally, missing this step can create issues when the company’s annual report is due in the authorized state, as technically, if the conversion is not reflected, the company is filing an annual report on an entity that no longer exists.  

Ensuring the records in every state where an entity is qualified are properly updated with the new entity type and domestic jurisdiction is an important step that can help avoid confusion and difficulties down the road. To ensure the process of reflecting the conversion goes as smoothly as possible, preliminarily researching the requirements for your specific situation or relying on an experienced and knowledgeable service provider is the best way to go.  

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.