If the legal structure of your business entity is no longer well-suited for your business, is there an easy way to convert it into a different structure? New Jersey is moving toward simple processes for converting business entities. Consider the following…
Entity choices…
Today’s entrepreneurs have many choices when it comes time to choose a structure for their business entities. In addition to a traditional corporation, partnership, or limited liability company (“LLC”), several hybrid structures are available as well. However, there can come a time when the original form of entity is no longer well-suited for the business. Some states, like Delaware, provide for a simple, “one step” process for converting a business entity from one legal structure to another. With rare exception, New Jersey law has not provided a streamline procedure for business conversions. In most cases, a conversion will require the formation of a new entity and a statutory merger, or some form of dissolution and transfer strategy.
New Jersey’s conversion law…
After many years of languishing in the New Jersey legislature, Senate Bill 142 was signed into law on May 8, 2023. Under the new law, on and after November 4, 2023, an LLC may convert into a corporation and a corporation may convert into an LLC through a relatively simple procedure. Unfortunately, simple procedures for converting all forms of business entities in New Jersey remain elusive. Other than converting a general partnership into a limited liability partnership, the conversion of partnerships remains somewhat cumbersome. Senate Bill 134 addresses this shortcoming, but has not been passed into law as yet. If passed, a partnership or limited partnership will be able to convert into another form of business entity and other forms of business entities will be able to convert into a partnership or limited partnership through a relatively simple procedure.
Conclusion…
It is encouraging to see New Jersey begin to follow the lead of other states and provide simple procedures for converting the legal structure of business entities. However, even though the mechanics of conversions are becoming more streamlined, conversions can have significant legal and tax consequences. Thus, it is prudent for business owners to obtain legal and tax advice prior to implementing a conversion. Please feel free to contact me if you would like more information about converting business entities.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you would like to have a free initial telephone consultation or learn more about me or my practice. Thank you.