Delaware re-incorporation and entity conversion just got easier

Startup companies sometimes need to re-incorporate in Delaware if they did their incorporation in a state where corporate law is deemed less friendly to business operations or investments. Other times, it is the legal structure which has to be changed (say from an LLC to a C Corp).

Brad Feld has started a useful set of posts on the topic a while back, and just mentioned that both changes got easier in Delaware:

The first innovation (Section 265 of DCGL – Delaware Corporate General Law) creates a simpler process for the reincorporation of non-Delaware corporations in Delaware (through a one-step “conversion” rather than through the traditional but cumbersome reverse merger of the non-Delaware corporation into a wholly-owned Delaware sub.) In English – if you are incorporated in a state other than Delaware and want to reincorporate in Delaware – it’s now a lot easier.

The second innovation allows for the one-step conversion of non-Delaware limited liability companies into Delaware corporations.  These conversions/reincorporations have historically required 2 steps – for instance, an Ohio LLC would be merged into a newly-formed Delaware LLC, and then that Delaware LLC would be converted into a Delaware corporation.  Now you can go from an Ohio LLC to a Delaware corporation in one step.  This eliminates one of my main objections to LLC’s that I wrote about in S-Corp’s vs. LLC’s.

A California incorporation is acceptable for most startups, but VCs will sometimes ask for the company to re-incorporate in Delaware. It is therefore good news that it got easier, which hopefully means cheaper as well.

  • Franck Poisson

    Maybe a stupid question, but why the SF Bay and the Valley start-ups do not register a DE directly, avoiding the costs of a DE re-incorporation later on ?

  • Stake Ventures

    Final VC objection to LLC’s gone

    Great news for people wishing to startup in an agile way and possibly seek funding later. Feld Thoughts has discovered new Delaware legislation making it easy to convert an out of state LLC to a Delaware Inc. Delaware Inc