Key takeaways
- In Delaware, a limited liability company (LLC) converts to a corporation by filing a certificate of conversion and a certificate of incorporation at the same time, under 8 Del. C. § 265. State fees for one-page documents as of October 10, 2026: $184 for the conversion and $109 or more for the certificate of incorporation.
- For an LLC taxed as a partnership, the IRS treats a state-law conversion as two steps. The partnership contributes all of its assets and liabilities to the corporation for stock. Then it distributes that stock to its partners (Rev. Rul. 2004-59).
- That exchange generally produces no gain or loss under section 351 when the transferors receive only stock and hold at least 80% control right after it. Liabilities above the tax basis of the assets transferred are the main exception: section 357(c) taxes the excess as gain.
- For an LLC taxed as a partnership, the conversion year brings a final Form 1065 and a first Form 1120 for the corporation, each with its own due date.
- For qualified small business stock (QSBS) purposes, stock received for property is treated as acquired on the exchange date, with a section 1202 basis of at least the property's fair market value. Value built up while the LLC was taxed as a partnership or a disregarded entity cannot be excluded under section 1202.
If you have not formed the business yet, the choice between the two forms is covered in a decision table for choosing an LLC or a C corp.
Four paths, side by side
Fees are Delaware's state filing fees as of October 10, 2026, for one-page documents.
| Path | What you file with the state | How the IRS treats it | Watch for |
|---|---|---|---|
| State-law conversion | A certificate of conversion to corporation ($184) and a certificate of incorporation ($109 or more), filed together | An LLC taxed as a partnership is treated as contributing its assets and liabilities for stock, then distributing the stock to its partners | The LLC's approval rules, and whether the LLC's current state lets it convert out |
| Merger into a corporation | A certificate of merger, $259 or more in Delaware, plus taxes when a Delaware entity merges out | The result depends on the form the steps take, so get tax advice before signing | A written merger agreement and approvals on both sides |
| LLC interests contributed to a new corporation | A certificate of incorporation for the new corporation, $109 or more | The IRS has described this as the "Interest-Over" form of Rev. Rul. 84-111 and generally respects the form when every step is actually taken | Tax basis and holding periods can come out differently than under the other forms. The LLC itself stays in existence, owned by the new corporation, and keeps paying its own annual state charges |
| Tax election only, on Form 8832 | Nothing. The LLC stays an LLC under state law | A partnership is treated as contributing its assets and liabilities for stock and distributing the stock to its partners. A single owner is treated as contributing them for stock | The entity is still an LLC under state law, so it does not satisfy anyone who requires a corporation under state law |
The certificate of incorporation fee varies with the stock it authorizes, and each extra page adds $9.
How a state-law conversion works in Delaware
Under 8 Del. C. § 265, an "other entity," a term that includes a limited liability company, may convert to a Delaware corporation by filing two documents: a certificate of conversion to corporation and a certificate of incorporation. The two "shall be filed simultaneously." The statute treats the result as a continuation rather than a new company. The corporation is "deemed to be the same entity as the converting other entity." The conversion "shall not be deemed to constitute a dissolution." The corporation's existence is deemed to have begun on the date the LLC began its existence. A Delaware LLC that converts also settles its LLC tax; the state fee schedule lists the conversion fee "plus tax when DE entity is converting."
Approval comes before the filing. For a Delaware LLC, 6 Del. C. § 18-216 looks first to the LLC agreement. If the agreement is silent on conversions, its rule for mergers applies. If it covers neither, the conversion needs the consent of members who own more than 50% of the interest in profits. An LLC whose original certificate of formation took effect on or before July 31, 2015 stays under the version of that default rule in effect on that date, unless its agreement provides otherwise. Separately, an LLC agreement can take away the power to convert altogether.
If the LLC was formed in another state, that state's law also has to let it leave. Wyoming's does: W.S. 17-26-101(b) allows a Wyoming entity to "be converted into any form of foreign entity recognized in that foreign jurisdiction." On the Delaware side, section 265 defines "other entity" to include "a limited liability company" without limiting it to Delaware LLCs. The fee schedule lists the conversion fee for "Domestic and non-Delaware entities to corporation." For a merger instead, 8 Del. C. § 264 allows a Delaware corporation to merge with an LLC formed in another state unless that state's laws prohibit the merger.
How the IRS treats the conversion
Federal tax law describes the same event differently from Delaware law. Where the statute treats the corporation as the same entity, the IRS treats the partnership as contributing its assets and then liquidating.
An LLC taxed as a partnership. Rev. Rul. 2004-59 holds that when an entity classified as a partnership "converts into a state law corporation under a state law formless conversion statute," the partnership "contributes all its assets and liabilities to the corporation in exchange for stock in such corporation, and immediately thereafter, the partnership liquidates distributing the stock of the corporation to its partners." The ruling says this is the same treatment that applies when a partnership elects to be taxed as a corporation.
The nonrecognition rule. Section 351(a) reads: "No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control" of the corporation. Control, under section 368(c), means at least 80% of the total combined voting power of the voting stock and at least 80% of the total number of shares of every other class.
The liability exception. Under section 357(c)(1), when the liabilities the corporation takes on exceed "the total of the adjusted basis of the property transferred," the excess is taxed as gain. Section 357(c)(3) leaves out liabilities whose payment "would give rise to a deduction," except to the extent that incurring the liability created or increased the basis of property. An LLC carrying loans against assets with a low tax basis should run this comparison before the conversion date.
A single-member LLC. Rev. Rul. 2004-59 is limited to entities classified as partnerships. The regulations do address a single-member LLC that elects corporate tax treatment: the owner is treated as contributing "all of the assets and liabilities of the entity to the association in exchange for stock of the association." The ruling does not cover a state-law conversion of a single-member LLC. Whether it is treated the same way is a question to settle with a tax adviser.
Mergers and contributions of interests. In the preamble to proposed regulations on partnership mergers (REG-111119-99), the IRS describes Rev. Rul. 84-111 as setting out three forms for incorporating a partnership: the Assets-Over Form, the Assets-Up Form, and the Interest-Over Form. It says a taxpayer's form "generally is respected if the taxpayer actually undertakes, under the relevant jurisdictional law, all the steps of a form." It adds that the basis and holding periods of the assets and the stock "can vary" with the form chosen. Rev. Rul. 2004-59 adds that Rev. Rul. 84-111 does not apply to a formless conversion. For a merger, which form applies depends on the steps the merger documents take, which is why the paths table says to get tax advice before signing.
The returns due in the conversion year
The Form 1065 instructions say a partnership's tax year ends on the date of termination. Section 708(b)(1) treats a partnership as terminated only when no part of its business "continues to be carried on by any of its partners in a partnership." After a conversion, no part of the business is carried on by partners in a partnership. So the partnership terminates and files a final Form 1065. The IRS page on closing a business says to check the "final return" box near the top of the return and the "final K-1" box on each Schedule K-1. The corporation then files Form 1120 from its first tax year.
For example, take a calendar-year LLC taxed as a partnership that converts to a Delaware corporation. Its final partnership year ends June 30, 2027, and the corporation uses the calendar year.
| Filing | Period | Due in this example | Rule |
|---|---|---|---|
| Final Form 1065, with a final Schedule K-1 for each member | January 1 to June 30, 2027 | September 15, 2027 | 15th day of the 3rd month after the partnership's tax year ends |
| First Form 1120, with the "Initial return" box checked | July 1 to December 31, 2027 | April 18, 2028. April 15 is a Saturday, and Monday, April 17 is the observed District of Columbia Emancipation Day | 15th day of the 4th month after the short period ends, moved past weekends and legal holidays under section 7503 |
| Form 5472, when a foreign person owns 25% or more and there was a reportable transaction with a related party | The corporation's tax year | With Form 1120, including extensions | Section 6038A and the Form 5472 instructions |
| Delaware annual report and franchise tax | Yearly | March 1, 2028 | Received by March 1 |
The final return carries the same Form 1065 late-filing penalty as any other year, per partner, per month. Estimated tax splits at the conversion date. Business income earned before that date still flows to the members' own returns for that year. It still counts toward their individual estimated tax for that year, subject to the usual safe harbors. Income earned after it belongs to the corporation, which pays corporate estimated tax on its own schedule.
QSBS: the clock starts on the conversion date
Section 1202 excludes part or all of the gain on qualified small business stock held by a taxpayer other than a corporation. As amended by Public Law 119-21 on July 4, 2025, the exclusion for stock acquired after July 4, 2025 phases in on this schedule:
| Years held | Share of the gain excluded |
|---|---|
| 3 years | 50% |
| 4 years | 75% |
| 5 years or more | 100% |
For that stock, the eligible gain from one company is capped at the greater of two amounts. The first is $15,000,000 minus eligible gain from that company's stock taken into account in earlier years. The second is 10 times your basis in that company's stock sold during the year. The company's aggregate gross assets cannot exceed $75,000,000 before the stock is issued or immediately after. Both the $15,000,000 figure and the $75,000,000 limit are adjusted for inflation in taxable years beginning after 2026. The company must also be a C corporation that meets the active business requirements of section 1202(e) during substantially all of your holding period.
Two provisions decide what a converting owner gets. For section 1202 purposes, section 1202(i)(1) says that when you transfer property other than money or stock to a corporation for its stock, the stock is "treated as having been acquired by the taxpayer on the date of such exchange." Its basis "shall in no event be less than the fair market value of the property exchanged." The holding period therefore starts on the conversion date. Value built up before that date, while the LLC was taxed as a partnership or a disregarded entity, cannot be excluded under section 1202. Section 1202(d)(2)(B) also counts contributed property at its fair market value for the gross assets test. So the business's value at conversion, not its old tax basis, is measured against the $75,000,000 limit. Stock issued while an LLC was taxed as an S corporation does not qualify, because section 1202 requires the issuer to be a C corporation when the stock is issued.
What a Delaware corporation costs each year
After a conversion or a merger, the annual charge is computed differently. Amounts are from the Delaware Division of Corporations as of October 10, 2026. The Delaware LLC column uses the same state figures as the cost comparison of Wyoming and Delaware LLCs.
| Delaware LLC | Delaware corporation | |
|---|---|---|
| What is due | Annual tax. No annual report | Annual report and franchise tax |
| Deadline | June 1 | March 1 |
| Amount | $400 | Franchise tax under the authorized shares method (minimum $175) or the assumed par value capital method (minimum $400), plus a $50 annual report fee. Maximum tax $200,000, or $250,000 for a Large Corporate Filer |
| Late | $200 penalty, plus 1.5% interest per month | $200 penalty for an annual report not filed by March 1, plus 1.5% interest per month |
The authorized shares method follows the number of shares the certificate of incorporation authorizes, so check that number before you file the certificate. Under the Division's schedule, 5,000 shares or fewer is $175, 5,001 to 10,000 shares is $250, and each additional 10,000 shares or portion of 10,000 adds $85. By our arithmetic from that schedule, a corporation whose certificate authorizes 10,000,000 shares owes $85,165 under this method: $250 for the first 10,000 shares plus 999 increments of $85. The assumed par value capital method charges $400 for each million dollars, or portion of a million, of assumed par value capital. That figure is computed using the total assets reported on Form 1120 Schedule L. The Division's instruction is to "use the method that results in the lesser tax."
A corporation owing $5,000 or more pays in installments:
- 40% by June 1
- 20% by September 1
- 20% by December 1
- The remainder by March 1
Cases that are hard to undo
Three results of a conversion are hard to undo or cannot be made up later.
- Going back is generally taxed as a liquidation. A corporation that distributes its property in complete liquidation recognizes gain or loss "as if such property were sold to the distributee at its fair market value" (section 336(a)). Shareholders treat what they receive "as in full payment in exchange for the stock" (section 331(a)). Switching back by tax election is open only to an LLC taxed as a corporation by election; a state-law corporation cannot elect partnership or disregarded status. When an LLC taxed as a corporation does elect back, the regulations treat it as distributing all of its assets and liabilities in liquidation. After an elective change, it generally cannot change its classification by election again for 60 months.
- Gain from liabilities is recognized on the way in. Gain recognized under section 357(c) in the conversion year stays recognized even if you later change course.
- Years before the change to C corporation status do not count toward QSBS. For an LLC taxed as a partnership or a disregarded entity, the holding period starts when the owners receive stock for the LLC's property or interests, or are treated as receiving it. Those earlier years do not count toward the three-, four-, or five-year schedule. Stock issued while an LLC was taxed as an S corporation is not qualified small business stock at all. Section 1202 requires the issuer to be a C corporation when the stock is issued.
Delaware also sets conditions for a corporation that later ends its existence. The Division says a corporation leaving by merger, dissolution, or conversion must file its annual report and pay its taxes in full. The corporation should also contact the Division's Franchise Tax Section before filing.
Do you need a new EIN?
The IRS page "When to get a new EIN" says a partnership or a sole proprietor that will "Incorporate" needs a new Employer Identification Number (EIN). The page also lists "Terminate an existing LLC and form a new corporation or partnership" among the LLC changes that need one. An LLC that changes only its tax treatment does not: the page lists "Change your tax election to a corporation or an S corporation" among the changes that need no new EIN. A state-law conversion of an LLC into a corporation is not listed on that page as its own case. Confirm it with the IRS or your tax preparer before the conversion takes effect.
If an owner is a foreign person
A US corporation is a "reporting corporation" under section 6038A when one foreign person owns at least 25% of its total voting power or total value at any time during the year. It files Form 5472 with its Form 1120 when it has a reportable transaction with a foreign or domestic related party. The penalty for failing to file, or to keep the required records, is $25,000 for each tax year. It rises by $25,000 for each 30-day period the failure continues more than 90 days after the IRS mails a notice.
A single-member LLC owned by a foreign person already files Form 5472 with a pro forma Form 1120 for years with reportable transactions, so the reporting continues after the conversion. What changes is that the corporation files a full Form 1120 and pays its own tax. Dividends it later pays to a foreign shareholder are generally subject to 30% US withholding, which an income tax treaty can reduce or eliminate. Publication 515 tells withholding agents they may apply a treaty rate only if the shareholder provides a Form W-8 with a US or foreign taxpayer identification number. The shareholder must also certify, among other things, that it is a resident of the treaty country and the beneficial owner of the income.
FAQ
Is converting an LLC to a C corp taxable? Generally not when section 351 applies: transferors who move property into a corporation for its stock alone, and hold at least 80% control right after, recognize no gain or loss. The main exception is section 357(c), which taxes liabilities taken on by the corporation to the extent they exceed the tax basis of the assets transferred.
Does the company keep its EIN? Changing only the tax election keeps the EIN. The IRS lists incorporating a partnership or a sole proprietorship, and terminating an LLC to form a new corporation, as changes that need a new one. A state-law conversion is not listed as its own case, so confirm it with the IRS before the conversion date.
What are the state fees to convert a Delaware LLC to a Delaware corporation? As of October 10, 2026: $184 for the certificate of conversion and $109 or more for the certificate of incorporation, plus any tax the LLC owes. The two certificates must be filed together. After that, the corporation files an annual report with a $50 fee and pays franchise tax by March 1 each year, or in installments if it owes $5,000 or more.
When does the QSBS holding period start for stock received in a conversion? On the date of the exchange. Section 1202(i)(1) treats stock received for property as acquired that day and, for section 1202 purposes, gives it a basis of at least the property's fair market value.
Can a Wyoming LLC become a Delaware corporation? Yes, if both states' steps are followed. Wyoming's statute allows a Wyoming entity to convert into a form of entity recognized in another jurisdiction. Delaware's section 265 lets a limited liability company convert to a Delaware corporation, and the fee schedule lists a filing fee for non-Delaware entities. Both states' approval and filing steps apply.
Sources
- 8 Del. C. §§ 264 and 265, mergers and conversions of other entities to a corporation, State of Delaware, accessed 2026-10-10
- 6 Del. C. § 18-216, Approval of conversion of a limited liability company, State of Delaware, accessed 2026-10-10
- 6 Del. C. § 18-1107, Taxation of limited liability companies, State of Delaware, accessed 2026-10-10
- Delaware Division of Corporations fee schedule, revised August 1, 2026, Delaware Division of Corporations, accessed 2026-10-10
- Annual report and tax information, Delaware Division of Corporations, accessed 2026-10-10
- How to calculate franchise taxes, Delaware Division of Corporations, accessed 2026-10-10
- Wyoming Statutes Title 17, including W.S. 17-26-101, Wyoming Legislature, accessed 2026-10-10
- Rev. Rul. 2004-59, Internal Revenue Bulletin 2004-24, IRS, accessed 2026-10-10
- REG-111119-99, Partnership mergers and divisions, notice of proposed rulemaking, IRS, accessed 2026-10-10
- 26 CFR 301.7701-2, Business entities; definitions, Legal Information Institute, accessed 2026-10-10
- 26 CFR 301.7701-3, Classification of certain business entities, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 351, Transfer to corporation controlled by transferor, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 357, Assumption of liability, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 368, Definitions relating to corporate reorganizations, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 706, Taxable years of partner and partnership, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 708, Continuation of partnership, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 6072, Time for filing income tax returns, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 7503, Time for performance of acts where last day falls on Saturday, Sunday, or legal holiday, Legal Information Institute, accessed 2026-10-10
- D.C. Code § 28-2701, Holidays designated; time for performing acts extended, Council of the District of Columbia, accessed 2026-10-10
- 26 U.S.C. 1202, Partial exclusion for gain from certain small business stock, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 331, Gain or loss to shareholders in corporate liquidations, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 336, Gain or loss recognized on property distributed in complete liquidation, Legal Information Institute, accessed 2026-10-10
- 26 U.S.C. 6038A, Information with respect to certain foreign-owned corporations, Legal Information Institute, accessed 2026-10-10
- Instructions for Form 1065 (2025), IRS, accessed 2026-10-10
- Form 1065 (2025), IRS, accessed 2026-10-10
- Closing a business, IRS, accessed 2026-10-10
- Instructions for Form 1120 (2025), IRS, accessed 2026-10-10
- When to get a new EIN, IRS, accessed 2026-10-10
- Instructions for Form 5472, IRS, accessed 2026-10-10
- Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities, IRS, accessed 2026-10-10
This guide is general information based on the sources listed above, not legal or tax advice. For decisions about your situation, talk to a licensed attorney, CPA, or enrolled agent.
