In today's Freedom Friday blog and email newsletter, I want to talk about something that I am sometimes asked about, and that's how an LLC can become a corporation, or more likely, how a corporation can become an LLC.  This process is what is called a “conversion,” which is a strange term, because I'm not talking about the tort of conversion (and I get asked about that one as well).  In today's Freedom Friday blog and email newsletter, I'm answering the question, “What is an Oklahoma business conversion?”

So, first of all, what is an Oklahoma business conversion?  A business conversion in Oklahoma is when a business entity, other than an Oklahoma LLC, desires to “convert” and become an Oklahoma LLC; or conversely, when an Oklahoma LLC desires to “convert” and become an entity other than an Oklahoma LLC.  These are two very different processes, and Oklahoma just updated its law regarding these issues, making this a very relevant topic. 

Since LLCs are the most common business entity in Oklahoma, let's first talk about how a business entity, other than an Oklahoma LLC, would “convert” and become an Oklahoma LLC.  The first step in this process is that the conversion must be approved in the manner provided for in the bylaws (or other agreement or writing) which governs the internal affairs of the entity desiring to convert to an Oklahoma LLC.  The entity will also need approval of the articles of organization of the new Oklahoma LLC, as well.  In addition, the entity must prepare and file with the Oklahoma Secretary of State articles of conversion.  The articles of conversion must state the date on which the converting entity was first formed; the name, jurisdiction of formation of the entity, and type of entity when formed and, if changed, its name, jurisdiction, and type of entity immediately before filing the articles of conversion; the name of the new Oklahoma LLC as set forth in the new articles of organization for the LLC; and the future effective date or time of the conversion, which shall be a date or time certain not later than ninety (90) days after the filing, if its not to be effective upon the filing of the articles of conversion and the articles of organization for the new Oklahoma LLC.  Upon the said effective date the entity has converted to an Oklahoma LLC.

On the other hand, how would an Oklahoma LLC convert to some other entity other than an Oklahoma LLC?  First, if the operating agreement specifies the manner of authorizing the conversion, then the conversion must be authorized as specified in the operating agreement.  However, if the operating agreement does not specify the manner of authorizing a conversion, and does not prohibit a conversion, then the conversion must be authorized in the same manner as is specified in the operating agreement for authorizing a merger or consolidation involving the LLC as a constituent.    However, if the operating agreement does not specify the manner of authorizing a conversion of the LLC or a merger or consolidation involving the LLC as a constituent, and does not prohibit a conversion of the LLC, then the conversion must be authorized by the approval of a majority of the membership interests or, if there is more than one class or group of members, by a majority of the membership interests in each class or group of members.  In addition, if the entity into which the LLC is converting does not afford all of its interest holders protection against personal liability for the debts of the new entity, then the conversion must be authorized by any and all members who would be exposed to personal liability.

Once again, the converting Oklahoma LLC must prepare and file with the Oklahoma Secretary of State articles of conversion which must state the name of the LLC and, if it has been changed, the name under which its articles of organization were originally filed; the date of filing of its original articles of organization with the Oklahoma Secretary of State; the name and type of entity to which the LLC is converting and its jurisdiction of formation, if a foreign (not in Oklahoma) entity; the future effective date and time of the conversion, which shall be a date and time certain not later than ninety (90) days after the filing of the articles of conversion; that the conversion was approved pursuant to Oklahoma law; if the domestic (in Oklahoma) entity to which the LLC is converting was required to make a filing with the Oklahoma Secretary of State as a condition of its formation, the type and date of such filing; and, if the LLC is converting to a foreign (not in Oklahoma) entity, the agreement by the new entity may be served with process in Oklahoma in any action, suit, or proceeding for enforcement of any obligation of the new entity arising while it was an Oklahoma LLC, and that it irrevocably appoints the Oklahoma Secretary of State as its agent to accept service of process in any such action, suit, or proceeding, and its street address to which a copy of the process shall be mailed to it by the Secretary of State.

As you can see, its much easier for a business entity to convert to an Oklahoma LLC than for an Oklahoma LLC to convert to some other kind of business entity.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

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