Convert a Texas Corporation to an LLC
Changing a Texas corporation into an LLC is not the same thing as starting a new company from scratch. A conversion changes the legal form of the business, so the company should review approvals, tax consequences, ownership records, and state filings before moving.
Texas has specific conversion filings for moving between corporation and LLC status. The filing should match the direction of the conversion.
Varying Types of Conversions
There is more than one kind of corporation and more than one kind of LLC tax setup. A conversion plan should start by identifying the current company, the target company, and the tax treatment expected after the conversion.
Common distinctions include:
- C corporations and S corporations
- For-profit and nonprofit corporations
- Domestic Texas entities and entities formed in another state
- Single-member and multi-member LLCs
- LLCs taxed as disregarded entities, partnerships, S corporations, or C corporations
Those distinctions matter because the state filing is only one part of the work. The company also has to review its governing documents, owner approvals, tax classification, bank records, contracts, licenses, and operating documents.
Texas Conversion Forms
Texas uses different forms depending on the direction of the conversion.
For a corporation converting to an LLC, Texas lists Form 632, Certificate of Conversion of a Corporation Converting to a Limited Liability Company. The Texas Secretary of State filing fee is $300.
For an LLC converting to a corporation, Texas lists Form 636, Certificate of Conversion of a Limited Liability Company Converting to a Corporation. The Texas Secretary of State filing fee is $300.
Use the form that matches the actual transaction. A corporation-to-LLC conversion and an LLC-to-corporation conversion are not interchangeable filings.
Before Filing the Conversion
Before preparing the state filing, review the corporation's Certificate of Formation, bylaws, shareholder records, and tax status. Those documents explain who can approve major company action and how that approval should be recorded.
Conversion is not a casual name change. The owners need to know how shares, ownership rights, governance authority, and company records will move into the new LLC structure.
Prepare the operating agreement before the conversion is treated as complete. A Texas LLC needs internal rules for members, managers, voting, contributions, distributions, transfers, records, and company authority.
Tax and Record Consequences
Conversion can create tax consequences. A corporation moving into LLC form may change how income, losses, ownership interests, payroll, and distributions are reported.
Review the tax effect before filing. If the corporation has S corporation status, retained earnings, owner payroll, shareholder loans, or appreciated assets, the tax review becomes more important.
The company should also update business records after conversion. That can include bank records, contracts, licenses, vendor files, customer notices, payroll accounts, tax accounts, insurance records, and internal minutes or consents.
Other Steps After Conversion
After the filing is accepted, use the new company name and structure consistently. The company should keep the conversion filing, approval records, operating agreement, tax review notes, bank updates, and contract updates with its permanent records.
If the converted LLC will operate in Texas, keep the Texas compliance calendar active. Texas LLCs do not file a separate annual report with the Secretary of State, but they do have a franchise tax and Public Information Report cycle with the Texas Comptroller.
The annual franchise tax report is due May 15 each year. The Public Information Report is due on the same date.