Background
A company formed an LLC in Massachusetts, in part because of the lower annual filing fee. Shortly afterward, the company sought private investment and learned that investors were more inclined to fund corporations rather than LLCs.
Key Legal Issue
The client’s separate investment counsel advised that the LLC members could simply elect corporate tax treatment by checking a box on a federal IRS form. However, that election would only change the tax treatment of the entity, not its legal structure under state law. The company would still be operating as an LLC, which did not address potential investors’ concerns.
Resolution
Because the entity was governed by Massachusetts law, we advised converting the LLC into a corporation under state law. Due to its size, the new corporation could then elect S-corporation tax treatment for tax savings as well.
We prepared the required twelve conversion documents, obtained the necessary signatures from members and shareholders, and recorded everything with the Secretary of State in prompt fashion so that our client successfully completed the conversion and was still then able to secure the private investment dollars it was seeking.