Can You Convert an Existing LLC into a Series LLC?


Have you got a regular LLC? Considering whether or not to change it into a Series LLC? Here are some of the things to think about before making the change:

  1. Are you in a Series LLC state? Currently, the following states have Series LLC law: Delaware, Illinois, Iowa, Kansas, Nevada, Oklahoma, Tennessee, Texas and Utah. In each of these states, you can file an amendment or other documentation to legally convert your regular LLC into a Series LLC.
  2. If you are not in a Series LLC, i.e., you set up an LLC in Georgia or Florida, you can’t turn your existing LLC into a Series LLC … at least in that state. You would need to start a whole new LLC, in one of the Series LLC law states. Or, if it was really important to you to keep your existing LLC’s history, Tax ID number, etc., you could go through a longer process, called a domestication and conversion. Essentially you would move your LLC’s corporate home to a Series LLC law state, simultaneously converting it into a Series LLC at the time. That would allow you to keep your existing history. You would then have to dissolve your existing LLC in your home state, to cancel it off the books. And finally, you’d have to reintroduce your newly converted Series LLC, this time as a foreign entity, back into your home state. It’s a convoluted process, and the costs are high – probably higher than simply starting a second LLC – but it can be done.
  3. Are you in a state that isn’t Series LLC friendly? All states permit LLCs from out-of-state to cross-register in, when required. The same goes for Series LLCs (you cross-register the parent only; there is no way to cross-register Series LLC Cells at this time). But there are times when it’s a bad idea.

Take California, for example. California doesn’t have domestic Series LLC laws, although it doesn’t mind when Series LLCs come in and cross-register from Nevada or elsewhere. However, California also looks at each Cell in the LLC as a distinct entity for tax purposes. The state is very clear that even if the other Cells aren’t doing business in California, where the Parent cross-registers in, all Cells are considered cross-registered in as well. As such, very Cell should voluntarily register with the Franchise Tax Board and pay the state’s minimum $800/year franchise tax fee. Now imagine you have a Delaware Series LLC, which currently has 10 Cells. Registration in California for you would mean a yearly minimum tax bill of 9 x $800, or $7,200. For this reason, it’s not a good idea to mix California and Series LLCs.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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