Texas LLC Conversion to Move an LLC to Texas

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

What is Texas LLC Conversion?

Texas conversion is a legal process that allows an LLC formed in another state to become a Texas LLC.¹ An out-of-state LLC that completes a Texas LLC conversion is no longer governed by the law of its original state. It is governed by Texas law. The LLC is still the same company, but it’s state of formation (or domicile) changes to Texas.

Some states use the term conversion for a process that changes a business’s entity type—conversion of a corporation to an LLC, for example. Those states often have a similar process—called domestication—that changes an LLC’s domicile. In Texas, the conversion process can change an LLC’s domicile to or from Texas, or it can change an LLC’s entity type.² This article’s focus is conversions that change out-of-state LLCs into Texas LLCs. The term domestication is sometimes used in this article to refer to the general concept of changing an LLC’s domicile.

Why Transfer an LLC to Texas?

Texas has one of the highest population growth rates in the nation. Many business owners who move to Texas want to bring their businesses with them. Converting an out-of-state LLC to Texas has several benefits, including:

• Owner convenience. Having Texas law govern an LLC is convenient if the owners live in Texas. Owners can avoid unnecessary complexity if they only need to focus on one set of laws. Meetings with state agencies—when necessary—are more convenient when an owner lives in the state that governs the business.
• Decreased paperwork. A Texas LLC conversion may help a business reduce the paperwork it needs to file with state offices. A Texas LLC that primarily operates in Texas may avoid having to file documents in multiple states—depending on the business’s contacts with other states.
• Favorable business laws. Texas law is generally considered business-friendly. An out-of-state LLC that converts to a Texas LLC may benefit from laws that complement its business plan or allow more management flexibility.
• Reduced tax burden. Texas is a low-tax state. Texas LLCs are subject to the state’s franchise tax, but there are no personal or corporate income taxes in Texas. The favorable tax structure can save LLC owners money and make recruiting employees easier.
• Professional networking advantages. A business owner who lives in Texas can more easily find local professionals—like attorneys and accountants—familiar with Texas law. An out-of-state LLC owner who lives in Texas may have difficulty finding local professionals with experience in a different state’s law.

What Are the Benefits of Texas LLC Conversion?

The conversion process to move an out-of-state LLC to Texas is designed to limit administrative hassle. The out-of-state LLC can change its governing law without disrupting business operations. Benefits of Texas LLC conversion include:

• The LLC’s identity and EIN are unchanged. The LLC continues to exist as the same entity with no interruption during and after conversion.³ Its business identity and Employer Identification Number (EIN) stay the same for tax purposes. The consistency avoids administrative confusion and potential legal complications.
• The LLC need not open or close its bank accounts. Conversion does not affect the LLC’s financial accounts or other assets.⁴ The business can open new accounts with a Texas bank if it chooses, but new accounts are not required.
• Business contracts are intact. The LLC remains a party to any contracts from before conversion. The business’s contractual rights and obligations are not altered by conversion.⁵ Employment relationships are unaffected, so there is no need for firing and rehiring employees.
• Business operations continue uninterrupted. There is no need to interrupt an LLC’s day-to-day operations during a conversion. The company can continue generating revenue while the conversion occurs behind the scenes.
• Dissolution in the current state is unnecessary. An out-of-state LLC that moves to Texas need not formally dissolve in its original jurisdiction. The business can continue transacting business is the original state by registering there as a foreign LLC, or it can just focus on Texas.

What LLCs can Convert to Texas LLCs?

A Texas LLC conversion is not available for every out-of-state LLC. A company’s ability to convert to Texas depends primarily on its current state’s law and its governing documents. Business owners should consider the below questions before starting a Texas LLC conversion.

Does the LLC’s current state allow domestication?

Texas permits LLC domestication, but not all states do. To convert to a Texas LLC, the LLC’s current state must have a legal procedure for an LLC to change its state of organization.⁶ The state’s law may call the process conversion or domestication.

Do the LLC’s governing documents allow conversion?

Business owners must review the LLC’s certificate of formation and operating agreement to ensure there are no provisions that prevent conversion or domestication to a new state. If any restrictions are present, the LLC may need to formally amend the documents to allow the procedure.

Does Texas allow LLCs to transact the type of business in which the LLC engages?

Texas gives LLCs broad authority to engage in lawful business. A company that provides professional services—services that require a license—can form as a Texas professional limited liability company (or PLLC). Business owners should confirm their LLC’s business is lawful in Texas and determine whether Texas requires licensing for the company’s business activities.

How Much Does Texas LLC Conversion Cost?

Business owners considering a move to Texas should take into account the cost of conversion compared to possible alternatives. A conversion’s costs consist primarily of service-provider costs and filing fees. Our article on LLC domestication cost provides more details about an LLC’s total costs incurred for moving to a new state.

Service-Provider Costs

An LLC’s service-provider costs for converting to Texas are the labor costs charged by the provider the company hires to handle the conversion. Some providers charge a flat fee, and some bill hourly. Time spent on a conversion will include information gathering, document preparation and filing, and communication with the business owners and state agencies.

Filing Fees

The Texas LLC conversion process requires a few layers of filing fees. The Texas Secretary of State charges filing fees of $300.00 for the certificate of conversion and $300.00 for the certificate of formation—both of which are required for an LLC conversion. Some LLCs may also have to pay an annual minimum tax of $800.00 to the Franchise Tax Board.

The fees paid to Texas are in addition to any filing fees that must be paid to the LLC’s original state. Most states charge a lesser fee for LLCs domesticating out of state than for LLCs moving into the state.

Example: To convert a California LLC to a Texas LLC, the business must pay filing fees totaling $600.00 to Texas, plus a $30 filing fee to the California Secretary of State.

By comparison, an out-of-state LLC operating in Texas must also pay filing fees to Texas. The filing fees for registering to do business in Texas as an out-of-state LLC are $750.00—which is more than the total filing fees for converting the LLC to a Texas LLC. A conversion to Texas makes more legal and financial sense in many cases than registering the business in Texas and complying with both states’ laws.

Registered Agent Fees

An out-of-state LLC’s cost for a conversion to Texas may also include fees paid to a commercial registered agent hired by the LLC. A registered agent is an individual or organization a business appoints to accept service of process on its behalf.⁷ A Texas LLC’s registered agent can be an individual who lives in Texas or an organization (other than the LLC itself) with authority to do business in Texas.⁸ In either case, the agent must have a physical address in Texas where legal papers can be served.

An LLC’s member or manager who lives in Texas can act as the LLC’s registered agent. However, companies often hire commercial registered agents to fill the role. This is because a registered agent’s name and address are public information, and the agent must be available to accept service of process during regular business hours. Hiring a commercial registered agent protects member or manager privacy and provides a consistent method for a business to receive important notices.

How Long Does Texas LLC Conversion Take?

The turnaround time for a Texas LLC conversion depends on several factors and can vary by transaction. The start-to-finish time necessary to convert an out-of-state business into a Texas LLC depends on:

• How long the document preparer takes to draft the necessary paperwork;
• How long members and managers take to review and sign the documents; and
• How long the Texas Secretary of State’s office takes to process the documents.

What Laws Govern Texas LLC Conversion?

Texas LLC conversion requires consideration of two sets of laws: the company’s original state’s law and Texas law. Texas’ legal requirements for converting an out-of-state LLC to a Texas LLC are outlined in the Texas Business Organizations Code and guidance published by the Secretary of State.

The LLC’s original state’s laws will determine:

• Whether the conversion is possible—the current state must authorize conversion or domestication of an LLC to a new state;⁹
• Contents of the plan of conversion or plan of domestication;¹⁰
• The standard for approving the plan of conversion or plan of domestication;¹¹
• The documents the LLC must files with its original state to complete conversion; and
• Any other requirements for LLCs formed in the original state to convert or domesticate to another state.

What is the Texas LLC Conversion Process?

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

Document Preparation

The Texas LLC conversion process involves preparing a series of documents and filing certain of those documents with state agencies. The conversion documents must be drafted to comply with both Texas law and the law of the LLC’s current state.

• Plan of Conversion. A Plan of Conversion that is designed to comply with the requirements of both Texas law and the law of the state that the LLC is moving from.
• Texas Certificate of Conversion. The Texas Certificate of Conversion with all information and any related documents needed for filing with the Business and Commercial Section of the Secretary of State.
• 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.¹²
• Texas Certificate of Formation. The Texas Certificate of Formation for filing with the Business and Commercial Section of the Secretary of State.
• Texas Company Agreement. A state-specific Company Agreement to properly structure the LLC as a Texas LLC, 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 Texas organizational documents as the LLC’s governing documents.

Administrative Tasks

An LLC that has prepared and approved the necessary paperwork must next complete several administrative tasks to officially implement the conversion to Texas.

• Conduct preliminary name search. Check the official records of Business and Commercial Section of the Secretary of State to determine whether the LLC’s name is available in Texas. (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 Business and Commercial Section of the Secretary of State 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 Business and Commercial Section of the Secretary of State requires a manual (wet) signature on the Certificate of Conversion (no e-signing).
• File the Certificate of Conversion. File the Certificate of Conversion with the Business and Commercial Section of the Secretary of State. The Business and Commercial Section of the Secretary of State allows the Certificate of Formation to be e-filed.
• File the Certificate of Formation. File the Certificate of Formation with the Business and Commercial Section of the Secretary of State. The Business and Commercial Section of the Secretary of State 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 Texas LLC Conversion?

Texas LLC conversion preserves the original LLC’s existence in the form of the Texas LLC. The company is the same entity before, during, and after conversion and simply exits the conversion as a Texas LLC governed by Texas law.

A Texas LLC conversion has the following legal effects:

• Continued existence. The original LLC continues to exist as the Texas LLC without interruption in its existence or form.¹³ The company keeps the same Employer Identification Number (EIN) and tax identity.
• Automatic property conversion. Any property owned by the original LLC continues to be owned by the Texas LLC in its new form.¹⁴ There is no need to create deeds or transfer instruments—the property transfer is automatic and uninterrupted.
• Continued liabilities. All of the original LLC’s liabilities and obligations stay with the Texas LLC and are not affected by the conversion. Liens on company property are unchanged.¹⁵
• Unimpaired contracts. The Texas LLC is still a party to the same contracts and has the same contractual rights and obligations from before the conversion.¹⁶
• Legal proceedings. A pending proceeding that involves the original LLC—or its owners or members in that capacity—may continue after conversion. The Texas LLC—or its owners or members in that capacity—continues as the party to the proceeding, and there is no need to substitute parties.¹⁷
• Conversion of equity. Ownership or membership interests in the original LLC are converted into ownership or membership interests in the Texas LLC as provided by the plan of conversion.¹⁸

1. Tex. Bus. Orgs. Code Ann. § 10.102.
2. Tex. Bus. Orgs. Code Ann. § 10.101.
3. Tex. Bus. Orgs. Code Ann. § 10.106(1).
4. Tex. Bus. Orgs. Code Ann. § 10.106(2).
5. Tex. Bus. Orgs. Code Ann. § 10.106(3).
6. Tex. Bus. Orgs. Code Ann. § 10.102(c).
7. Tex. Bus. Orgs. Code Ann. § 5.206.
8. Tex. Bus. Orgs. Code Ann. § 5.201.
9. Tex. Bus. Orgs. Code Ann. § 10.102(c).
10. Tex. Bus. Orgs. Code Ann. § 10.102(b).
11. Tex. Bus. Orgs. Code Ann. § 10.154(b)(2).
12. 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).
13. Tex. Bus. Orgs. Code Ann. § 10.106(1).
14. Tex. Bus. Orgs. Code Ann. § 10.106(2).
15. Tex. Bus. Orgs. Code Ann. § 10.106(3).
16. Tex. Bus. Orgs. Code Ann. §§ 10.106(2)-(3).
17. Tex. Bus. Orgs. Code Ann. § 10.106(5).
18. Tex. Bus. Orgs. Code Ann. § 10.106(6).