How to Move an LLC to Delaware

There are many reasons why a business owner may want to move an LLC to Delaware. This article discusses the use of conversion, known in some states as LLC domestication, to transfer an LLC to Delaware.

What is Delaware LLC Conversion?

Delaware conversion is a legal process that allows an out-of-state (or foreign) LLC to become a Delaware LLC.¹ An LLC that completes a Delaware conversion changes its state of organization—also called domicile—to Delaware. After the conversion, the company is a Delaware LLC governed by the Delaware Limited Liability Company Act.²

Some states call the legal procedure that changes an LLC’s state of organization a domestication. Delaware uses the name domestication only for a similar transaction that officially moves an entity organized in another country to Delaware.³

Delaware’s conversion process can also change a Delaware LLC into an out-of-state LLC.⁴ And, the word conversion—as used in Delaware—can also mean a transaction that changes an entity’s business structure.⁵ An LLC converts to a corporation, for example. This article only discusses conversions that change an out-of-state LLC to a Delaware LLC.

Why Transfer an LLC to Delaware?

Delaware’s business-friendly laws make it one of the most popular states for organizing LLCs. A Delaware LLC conversion offers a few potential advantages for an out-of-state business.

• Reduced reporting requirements. Delaware LLCs do not have to file annual reports in Delaware. An out-of-state LLC that moves to Delaware reduces its reporting requirements if it no longer must file in its former state.
• Owner privacy. Delaware allows greater privacy for a company’s ownership than many other states. A Delaware LLC’s registered agent is public information, but not its members.⁶
• Potential tax savings. An out-of-state LLC may save on taxes by moving to Delaware if the company ends its connection—or nexus—with the original state. Delaware does not charge income tax to Delaware-based LLCs that do not do business in Delaware. There is, however, a $300.00 annual franchise tax on Delaware LLCs.⁷
• Business-friendly laws. Delaware is considered one of the most attractive states for businesses, and over half of current Fortune 500 companies are chartered there. Among other things, LLCs benefit from the management flexibility offered by the Delaware LLC Act.⁸ Delaware companies also benefit from the state’s business-oriented chancery court system—which handles business and contract matters—and a well-developed body of commercial case law.⁹
• Professional networking. Conversion to Delaware can offer networking advantages for business owners who move to the state. Local professionals in Delaware—such as accountants and attorneys—are typically more familiar with Delaware law than that of other states. Even Delaware-based LLCs not physically located in Delaware may find it easier to find knowledgeable service providers. Many professionals around the country have experience with Delaware law due to the state’s popularity as a business domicile.
• Convenience. Business owners often prefer the business be chartered in the state where they live. A Delaware LLC conversion may make moving easier for business owners who move to Delaware.

What are the Benefits of Delaware LLC Conversion?

Conversion offers the most direct and easy way to change an out-of-state LLC’s state of organization to Delaware. The conversion process has several key advantages over other approaches to formally moving a business:

• The business’s identity does not change. A converting LLC remains the same entity during and after conversion—with the same EIN (Employer Identification Number) and tax identity.¹⁰ Changing a business’s corporate identity can cause confusion and problems with government agencies, among other things.
• Assets and liabilities are the same. After conversion, an LLC has the same property rights, bank accounts, and other assets as before conversion.¹¹ The LLC still owes any debts and obligations it owed before conversion.¹² There is no need to transfer the LLC’s assets and liabilities because the company is the same entity before and after conversion.¹³
• Real estate is unaffected. A converting LLC’s real estate—like other assets—is not affected by conversion. The company continues to own the same property, and any liens remain in place.¹⁴
• Existing contracts are still in force. A Delaware LLC conversion does not change any of the company’s existing contracts. The LLC has the same contractual rights and responsibilities before and after conversion.¹⁵
• Day-to-day operations are not disturbed. The LLC can continue running as usual during the conversion—with no shutdowns or interruptions. Employment contracts remain in place. It is unnecessary to dissolve the company, wind down operations, or divide assets unless the members expressly decide otherwise.¹⁶
• Registration in the former state is unnecessary. An LLC that converts to Delaware need not register as a foreign LLC in the original state unless the company will continue doing business there.

What LLCs can Convert to Delaware LLCs?

A Delaware LLC conversion is not possible for every out-of-state LLC. An LLC can convert to Delaware only if its current state also has a legal procedure for changing an LLC’s domicile. The procedure may be called conversion or domestication. A company formed in a state with no statutory procedure for changing domicile cannot convert to Delaware.¹⁷

An out-of-state LLC cannot undergo a Delaware LLC conversion if the company’s governing documents disallow conversion.¹⁸ The governing documents need not expressly allow conversion—they just cannot forbid it. An LLC must formally amend any governing document that prevents conversion before starting a conversion to Delaware.¹⁹ Delaware law calls an LLC’s two main governing documents the certificate of formation and the limited liability company agreement.²⁰ Some states use the terms articles of organization and operating agreement for these documents.

Only LLCs engaged in types of business in which Delaware LLCs can engage can conduct a successful Delaware conversion. Delaware law allows LLCs to pursue “any lawful business” other than banking.²¹ An out-of-state LLC involved in banking or activities that are unlawful in Delaware cannot successfully convert to a Delaware LLC.

How Much Does Delaware LLC Conversion Cost?

A business’s total cost for a Delaware LLC conversion includes labor costs, filing fees, and—when necessary—the cost of hiring a registered agent.

• Labor costs. The labor costs for a Delaware conversion are the amounts the LLC pays to the service provider hired to handle the transaction. Work that goes into a Delaware LLC conversion includes information gathering, document preparation, communications with business owners and state offices, and document filing. Precise costs vary by transaction and provider. Some providers offer a flat rate, and some bill hourly.
• Filing fees. An out-of-state LLC converting to Delaware pays filing fees to the Delaware Secretary of State totaling $290.00. The amount consists of a $200.00 fee for the certificate of conversion and a $90.00 fee for the certificate of formation.²² The LLC will need to pay filing fees to the current state, also, in an amount that varies by state.
• Registered agent fees. A Delaware LLC must have a registered agent who can legally accept service for the company.²³ An LLC’s registered agent can be an individual Delaware resident, a business entity with a Delaware office that can legally do business in Delaware, or the LLC itself if it has a Delaware business office that is generally open.²⁴ Many business owners choose to hire commercial registered agents to promote consistency and privacy. The cost for a commercial registered agent is typically $100.00–$150.00 per year in Delaware.

How Long Does Delaware LLC Conversion Take?

The length of time for conversion to Delaware varies by transaction. Factors that can affect the timeline include the service provider’s time spent preparing and filing documents, the business owners’ time for review and signing, and the Division of Corporations’ processing time. The division offers faster processing, ranging from next-day service to one-hour service, for an extra fee.

What Laws Govern Delaware LLC Conversion?

Both Delaware law and the laws of the LLC’s current state govern a Delaware LLC conversion.²⁵ Delaware’s LLC conversion laws appear in Subchapter II of the Delaware LLC Act. The laws of the out-of-state LLC’s current state decide the following:

• Is conversion possible? Conversion to Delaware is not possible if the current state has no legal conversion method.
• What must the plan of conversion include? The current state sets the minimum content that the LLC’s plan of conversion must include.
• How is the conversion approved? The current state sets the standard for approval of the conversion by the company’s members or managers.
• What must be filed in the current state? The current state decides what—if any—documents outgoing LLCs must file in that state to complete a conversion.²⁶

A converting LLC must perform every part of the conversion process as described in the laws of both states and the company’s governing documents.

What is the Delaware LLC Conversion Process?

The Delaware LLC conversion process consists of two components: document preparation and administrative tasks.

Document Preparation

An LLC conducting a Delaware LLC conversion must prepare several documents that set the terms of the conversion. The conversion documents must be carefully drafted to satisfy both states’ legal requirements and to reflect the owners’ intended terms.

• Plan of Conversion. A Plan of Conversion that is designed to comply with the requirements of both Delaware law and the law of the state that the LLC is moving from.
• Delaware Certificate of Conversion. The Delaware Certificate of Conversion with all information and any related documents needed for filing with the Divisions of Corporations of the State of Delaware.
• Conversion Document for Filing in Prior State. Depending on state law, this document may be called articles of domestication, statement of domestication, articles of conversion, certificate of conversion, statement of conversion, certificate of conversion, or a similar term.²⁷
• Delaware Certificate of Formation. The Delaware Certificate of Formation for filing with the Divisions of Corporations of the State of Delaware.
• Delaware Limited Liability Company Agreement. A state-specific Limited Liability Company Agreement to properly structure the LLC as a Delaware , provide rules for profit distributions and decision-making, clarify the federal income tax classification, and help provide maximum liability protection.
• Resolution Authorizing Conversion. A resolution approving the transaction and adopting the Delaware organizational documents as the LLC’s governing documents.

Administrative Tasks

Several administrative tasks are necessary to complete the conversion process. The LLC becomes a Delaware LLC once the tasks are completed and all necessary documents are accepted by the Delaware Secretary of State and the original state’s equivalent office.

• Conduct preliminary name search. Check the official records of Divisions of Corporations of the State of Delaware to determine whether the LLC’s name is available in Delaware. (If the name is unavailable, a slight name change may be required to complete the conversion.)
• Obtain signatures on the Certificate of Conversion. The Certificate of Conversion must be signed by the required parties. The Divisions of Corporations of the Delaware Secretary of State’s office allows the Certificate of Conversion to be e-signed.
• Obtain signatures on the Certificate of Formation. The Certificate of Formation must be signed by the required parties. The Divisions of Corporations of the Delaware Secretary of State’s office allows the Certificate of Formation to be e-signed.
• File the Certificate of Conversion. File the Certificate of Conversion with the Divisions of Corporations of the Delaware Secretary of State’s office. The Divisions of Corporations allows the Certificate of Formation to be e-filed.
• File the Certificate of Formation. File the Certificate of Formation with the Divisions of Corporations of the Delaware Secretary of State’s office. The Divisions of Corporations allows the Certificate of Conversion to be e-filed.
• File conversion documents with prior state. File the conversion documents with the Secretary of State or equivalent agency for the state that the LLC is moving from.

What is the Legal Effect of Delaware LLC Conversion?

The conversion process softens the legal and practical effects of changing a business’s domicile. An out-of-state LLC that converts to Delaware remains fundamentally the same entity before, during, and after conversion.²⁸ The company’s date of formation is still the date it was formed in its original state—not the conversion’s effective date.²⁹

A Delaware LLC conversion has the following legal effects for a business:

• Change in governing law. An LLC that converts to Delaware becomes a Delaware LLC governed by Delaware law—and gets the commercial benefits that come with that.³⁰
• Contractual consistency. A Delaware LLC conversion does not affect a company’s contractual rights or responsibilities. Existing contracts remain in place and legally valid, and the LLC can continue its contractual relationships.³¹
• Property rights. An LLC that completes a Delaware conversion owns the same assets and owes the same debts it had before conversion. Its property rights—including ownership of real estate—are not affected. A converting LLC need not transfer or assign assets to the converted Delaware LLC. Transfers are unnecessary because the LLC is still the same entity.³²
• Ownership rights. A Delaware LLC conversion affects ownership rights in the company only if the members want their rights to change.³³ An out-of-state LLC’s owners typically keep the same investments, profits, and voting rights in the converted LLC. Members can agree in a plan of conversion to sell their ownership in the out-of-state LLC for cash, property, rights, or other payment.³⁴
• Distribution not required. A converting LLC does not have to distribute assets to members, pay off company debts, or wind up its affairs unless the members expressly decide otherwise.³⁵

A Delaware LLC conversion can benefit many companies due to Delaware’s business-friendly laws. Before starting a conversion, it’s important to check the laws of both Delaware and the LLC’s current state.

1. 6 Del. C. § 18-214.
2. Delaware LLC Act, Del. Code, Title 6, Chapter 18.
3. 6 Del. C. § 18-212.
4. 6 Del. C. § 18-216(a).
5. 6 Del. C. § 18-214(b).
6. See 6 Del. C. § 18-201.
7. 6 Del. C. § 18-1107.
8. See, e.g., 6 Del. C. §§ 18-101(9); 18-201(d).
9. See 10 Del. C. §§ 10-301, et seq.
10. 6 Del. C. § 18-214(g).
11. 6 Del. C. § 18-214(f).
12. 6 Del. C. § 18-214(e).
13. 6 Del. C. § 18-214(f).
14. 6 Del. C. §§ 18-214(e) and (f).
15. 6 Del. C. § 18-214(f).
16. 6 Del. C. § 18-214(g).
17. See 6 Del. C. § 18-214(h).
18. 6 Del. C. § 18-216(i).
19. See 6 Del. C. § 18-214(j).
20. 6 Del. C. §§ 18-101(2) and (9).
21. 6 Del. C. § 18-106.
22. See 6 Del. C. § 18-1105.
23. 6 Del. C. § 18-104.
24. 6 Del. C. §§ 18-104(a) and (e).
25. 6 Del. C. § 18-214(h); 6 Del. C. § 18-216(e).
26. 6 Del. C. § 18-216.
27. Fourteen states use the term articles of domestication to refer to the document that must be filed with the state to approve the domestication: Iowa, Massachusetts, Minnesota, Nebraska, New Hampshire, New Jersey, North Dakota, South Dakota, Utah, Vermont, Virginia, Wisconsin, Wyoming, and Indiana. The corresponding document may be called a statement of domestication (Alaska, Arizona, Connecticut, Idaho, Illinois, Mississippi, and Pennsylvania); articles of conversion (Florida, Nevada, North Carolina, Oregon, and Washington) or certificate of conversion (California, Delaware, Georgia, Michigan, Ohio, and Texas). It may also be called a statement of conversion (Colorado, Maine), certificate of domestication (Kansas), request for conversion (Louisiana), or statement/plan of domestication (District of Columbia).
28. 6 Del. C. § 18-214(g).
29. 6 Del. C. § 18-214(d).
30. 6 Del. C. § 18-214(d); See also, Delaware Limited Liability Company Act, Delaware Code, Chapter 18.
31. 6 Del. C. §§ 18-214(e)-(f).
32. 6 Del. C. § 18-214(f).
33. 6 Del. C. § 18-214(i).
34. 6 Del. C. § 18-214(i).
35. 6 Del. C. § 18-214(g).