California LLC Conversion: Plan, Filing, and Tax Effects

A California LLC conversion is a statutory process that changes your existing corporation, partnership, or limited partnership into a California limited liability company without dissolving the old entity or forming a new one. You adopt a written plan of conversion, secure the owner approvals your current entity requires, file the correct form with the California Secretary of State, and then handle the tax and compliance follow-up. Done properly, the LLC that emerges is legally the same entity that went in, which means contracts, property, licenses, and lawsuits carry across on their own.

The mechanic behind that continuity is California Corporations Code Section 17710.09. Under that section, the converted LLC is the same entity as the converting entity. Property vests in the LLC automatically, debts and liabilities remain in place, creditor liens keep their priority, and pending litigation continues without interruption.¹ You are not signing new deeds or assigning contracts one at a time. That is the whole appeal of a statutory conversion over dissolving one entity and forming another.

Which Entities Can Convert

California law authorizes several domestic entity types to convert directly into a California LLC: corporations, limited partnerships, general partnerships, and limited liability partnerships.² A foreign entity organized outside California can also convert if the laws of its home jurisdiction permit the conversion. If your home state’s statute does not authorize a direct conversion into a California LLC, this route is closed and you will need a different structure to reach the same result.

Draft the Plan of Conversion

Every conversion begins with a written plan of conversion, adopted before anything is filed with the state. For a corporation converting to a California LLC, the plan must set out:

The terms and conditions of the conversion.
The name, form, and jurisdiction of the entity after conversion.
How existing ownership interests (shares or partnership interests) will convert into LLC membership interests.
The provisions of the operating agreement that will govern the members of the new LLC.
Any other provisions required by the laws governing the converting entity or that the entity chooses to include.²

Prepare the operating agreement in parallel with the plan. When the filing takes effect, the LLC needs governing rules already in place covering management, allocations of profit and loss, and member duties.

Get the Right Owner Approvals

Approval thresholds are not uniform, and using the wrong one can undo the conversion. Read your own governing documents before calling any vote.

Corporations

A corporation needs approval at two levels. The board of directors must approve the plan. Then the outstanding shares of each class must approve the principal terms, generally by a majority of each class. A close corporation needs at least two-thirds of each class, unless its articles of incorporation lower that to a simple majority.²

Converting to an LLC adds a further requirement. Any shareholder who will become a manager of the new LLC must individually approve the plan, unless dissenting shareholders have appraisal rights under Section 1159.² Articles or bylaws can impose higher thresholds, so a simple majority is not necessarily enough.

General Partnerships

For a general partnership, the partnership agreement controls. If the agreement specifies a vote for conversions, that vote applies. If it is silent on conversions, the amendment threshold governs. If it is also silent on amendments, all partners must approve. Partnerships that never formalized their internal governance often land in that unanimity default.

Limited Partnerships

A limited partnership generally needs consent from all general partners plus the vote of limited partners specified in the partnership agreement. Agreements vary, so pull yours and read it before setting a meeting.

Dissenter’s Rights for Shareholders

Shareholders who vote against a corporate conversion can invoke the same dissenter’s rights available in a reorganization: a demand that the corporation buy their shares at fair market value rather than issue them membership interests.³ If you are pushing the conversion through over dissent, budget for the possibility of a buyout.

File the Conversion With the Secretary of State

Which form you file depends on what you are converting from. Most domestic entities converting into a California LLC file Articles of Organization – Conversion on Form LLC-1A. Foreign entities and non-registering general partnerships use the Certificate of Conversion, Form CONV-1A.⁴

The form asks for the converting entity’s name and jurisdiction, the proposed name for the new California LLC (which must include “LLC” or “Limited Liability Company”), and a statement that the plan of conversion was approved as required by the applicable laws. If a corporation is the converting entity, an officer’s certificate must state the total shares entitled to vote and the percentage that approved. Foreign entities must affirm that their home jurisdiction authorizes the conversion.

Filing fees for Form LLC-1A are $150 when the converting entity is a California corporation and $70 for all other entity types converting into a California LLC.⁴ Form CONV-1A costs $150 if a California corporation is involved and $30 otherwise.⁵

You can file online through BizFile, by mail, or in person in Sacramento. Expedited processing is available for an added fee.⁶ You can specify a delayed effective date on the filing; otherwise the conversion is effective when the Secretary of State files it. The Secretary of State returns a file-stamped copy as evidence of the conversion.

Federal Tax Consequences

This is the part that can make or break the decision. The federal treatment depends on what the entity was and how the new LLC will be taxed.

Corporation Converting to an LLC Taxed as a Partnership

The IRS treats this as a complete liquidation of the corporation. The corporation recognizes gain or loss on the deemed distribution of its assets, as if it had sold everything at fair market value.⁷ Each shareholder then recognizes gain or loss on the difference between the fair market value of the assets received and the shareholder’s stock basis, because the liquidating distribution is treated as full payment in exchange for the stock.⁸

For a C corporation with appreciated assets, that is tax at the corporate level and again at the shareholder level. The combined bill can be large enough that the conversion no longer makes economic sense. S corporations face the same structure with the softening of pass-through treatment. Get a tax analysis before you commit either way.

Partnership Converting to an LLC Taxed as a Partnership

This is generally a non-event for federal tax purposes. The partnership is treated as contributing its assets and liabilities to the LLC in exchange for membership interests, tax basis carries over, and no gain or loss is triggered. It is one reason partnership-to-LLC conversions are far more common than corporate ones.

Do You Need a New EIN?

It turns on whether the tax classification changes. A partnership converting to an LLC that will still be taxed as a partnership keeps its existing Employer Identification Number.⁹ A corporation converting to an LLC taxed as a partnership needs a new EIN; file Form SS-4 with the IRS before the conversion takes effect so the LLC has its number ready.

California Franchise Tax and LLC Fee

Every LLC doing business or organized in California owes an annual franchise tax of $800, regardless of income, from the first taxable year until the LLC is formally canceled.¹⁰

LLCs with California income at or above $250,000 owe an additional annual fee on top of the $800:

$250,000 to $499,999: $900
$500,000 to $999,999: $2,500
$1,000,000 to $4,999,999: $6,000
$5,000,000 or more: $11,790¹⁰

“Total income” for this fee is broader than net profit; it includes gross income plus cost of goods sold attributable to California.¹¹ A high-revenue, low-margin business can owe substantial fees even with modest profits.

The converting entity files a final return through the conversion’s effective date. The new LLC files its own initial return on Form 568 for the remainder of the tax year.

After the Filing Takes Effect

The Secretary of State’s file stamp is the legal moment, but several tasks need attention right after.

Statement of Information

File a Statement of Information with the Secretary of State within 90 days of the conversion’s effective date. The fee is $20, and it can be submitted through BizFile. After the first filing, the Statement of Information is due every two years.

Employment Development Department

If you have employees, report the entity change to the California Employment Development Department through e-Services for Business. Update the entity type, the Secretary of State entity number, and the federal EIN if a new one was required.¹² Payroll tax accounts tied to the old entity type can create reporting mismatches quickly if left alone.

Trademarks, Licenses, and Permits

Although the conversion is not a legal transfer of property, agencies that track ownership records may not update on their own. Update federal trademark ownership through the USPTO Assignment Center, and do the same for patents.¹³ Update state and local business licenses, professional permits, and any industry-specific registrations to reflect the new entity name and type.

Banks and Contract Counterparties

Give your bank the file-stamped Certificate of Conversion, the new entity name, and the new EIN if one was issued, and update signature cards and account records. Existing contracts stay enforceable automatically under Section 17710.09, but some lenders and counterparties will still want written notice or refreshed documentation.¹ Reach out to key vendors, landlords, and lenders before they discover the change on their own.

1
California Legislative Information. California Code Corporations Code – Section 17710.09
2
California Legislative Information. California Code Corporations Code – Section 1152
3
California Legislative Information. California Code Corporations Code – Section 1159
4
California Secretary of State. Conversion Information
5
California Secretary of State. Business Entities Fee Schedule
6
California Secretary of State. Current Processing Dates
7
Office of the Law Revision Counsel. 26 U.S. Code 336 – Gain or Loss Recognized on Property Distributed in Complete Liquidation
8
Office of the Law Revision Counsel. 26 U.S. Code 331 – Gain or Loss to Shareholder in Corporate Liquidations
9
Internal Revenue Service. Do You Need a New Employer Identification Number? (Publication 5845)
10
Franchise Tax Board. Limited Liability Company
11
State of California Franchise Tax Board. FTB Pub. 3556 – Limited Liability Company Filing Information
12
Employment Development Department. Changes to Your Business
13
United States Patent and Trademark Office. Trademark Assignments: Transferring Ownership or Changing Your Name