Converting a Texas LLC to a Delaware C-Corp Before Seed Funding

Texas LLC to a Delaware C-Corp

Entrepreneurs often start as a Texas LLC for simplicity, then convert to a Delaware C-Corporation to attract investors, enable stock issuance, and benefit from Delaware’s well-developed corporate law. A Section 18 conversion under Texas law or a statutory merger can accomplish this transition smoothly.

Relevant Code & Tax References

• Texas Business Organizations Code §11.301–.319 (Conversion of a Domestic Entity)
• Delaware General Corporation Law (DGCL) §265 (Domestic Entity Conversion)
• IRC §368(a)(1)(F) (Reorganization Treatment for LLC-to-Corporation Conversions)
• IRC §351(a) (Transfer of Property to Corporation in Exchange for Stock — tax deferral on eligible transfers)

Key Forms & Filings

• Texas Form 22-211 (Certificate of Conversion) filed with the Texas Secretary of State
• Delaware Form ConV (Certificate of Conversion) filed with Delaware Division of Corporations
• Delaware Form S-1 (Certificate of Incorporation) for new C-Corp
• IRS Form 8832 (to elect corporate classification if needed)
• IRS Form 2553 (if you later want S-Corp status, not typical for seed-stage)

Detailed Example
“GreenTech LLC,” a Texas single-member LLC, plans to raise a $1.5 million seed round. Steps and results:

1. Texas Conversion:
   • File Form 22-211 and a Plan of Conversion showing GreenTech LLC becomes GreenTech Corp (Delaware).
2. Delaware Incorporation:
   • File Certificate of Conversion + Certificate of Incorporation for GreenTech Corp.
3. Tax Election:
   • Under IRC §368(a)(1)(F), assets and liabilities of the LLC transfer tax-free to the new C-Corp; membership interests convert into stock.
4. Result:
   • GreenTech Corp issues 15 million shares at $0.10 par value; founder receives 7 million shares, leaving 8 million shares reserved for investors—ideal cap table for seed financing.

Step-by-Step Guide

1. Board/Member Approval
   • Draft and approve a Plan of Conversion by LLC members (Texas statute requires majority).
2. Texas Filings
   • File Form 22-211 and pay $300 conversion fee to the Texas SOS.
3. Delaware Filings
   • Prepare and file Certificate of Conversion and Certificate of Incorporation with Delaware (approx. $400 total).
4. Update Governing Documents
   • Adopt new Bylaws, appoint initial directors, and issue stock certificates.
5. Tax Filings
   • If the LLC default classification is partnership, file Form 8832 to elect corporation (if needed).
   • Confirm under IRC §368(f) that the conversion qualifies as a tax-free reorganization.
6. Post-Conversion Compliance
   • Obtain a new EIN for the C-Corp (IRS Letter CP 575).
   • Update bank accounts, contracts, and vendor registrations.
   • File a final Texas LLC franchise-tax report (Form 05-158) marking “Final Report.”

Conclusion

Converting your Texas LLC to a Delaware C-Corp before seed funding positions you for venture investment, stock-based compensation, and Delaware’s corporate governance benefits. By following statutory conversion procedures and IRS reorganization rules, you can often achieve a tax-deferred transition.

Schedule a Consultation

Discuss your conversion strategy with our CPA, Anshul Goyal:
https://calendly.com/anshulcpa/

Disclaimer

This blog provides general guidance on converting a Texas LLC to a Delaware C-Corp and does not constitute legal or tax advice. Always confirm current filing requirements and fees with the Texas Secretary of State, Delaware Division of Corporations, and consult your tax advisor regarding IRS reorganization treatment. For tailored assistance, consult Anshul Goyal, CPA EA FCA—a licensed CPA in the United States and Enrolled Agent before the IRS—who specializes in entity conversions and startup tax planning.

About Our CPA

Anshul Goyal, CPA EA FCA, has over a decade of experience advising startups on entity structuring, reorganization tax planning, and venture-friendly corporate governance. He helps founders optimize their cap tables and maintain compliance across jurisdictions.

Top 5 FAQs

1. Is the conversion tax-free?
Generally yes, under IRC §368(a)(1)(F) if structured correctly, but confirm with your tax advisor.

2. Do I need a new EIN?
Yes—the Delaware C-Corp must obtain its own EIN (IRS Letter CP 575).

3. How long does the process take?
Texas conversion: ~5 business days; Delaware filings: ~2–3 business days (expedited options available).

4. Can I reserve stock for an option pool?
Yes—include option-pool authorization in the Certificate of Incorporation.

5. Do I still file Texas franchise tax?
File a final “No Tax Due” or full final franchise-tax report (Form 05-158) for the LLC, then comply as a foreign corporation if you continue Texas operations.