Changing Your Entity in Nevada – Conversions and Domestications
Are you thinking of relocating your existing business to Nevada, or reorganizing as a different entity type? As business attorneys, we get asked about this all of the time.
Nevada allows owners of foreign entities to convert or domesticate as Nevada based companies. This allows you to keep your EIN, the credit your company has built, the title to all real estate and/or other property owned by the company, any applicable licensure, and, among other things, your company’s good will. You won’t have to start from scratch with a new entity or worry about transferring your company’s assets to a new entity either, although, in fairness, all liabilities remain as well.
Nevada also allows domestic entities to convert their organizational structure. In other words, if you currently own a Nevada corporation and want to become a Nevada LLC, you can do so (it works the other way too).
How does one go about accomplishing this, you ask? Well, through a Conversion or Domestication, of course!
A conversion allows an entity to change its state of incorporation/organization and/or the type of entity it is. This means that if you own a Nevada corporation, you may convert it in to a Nevada LLC. If you choose to convert your Nevada entity to a different type of Nevada entity, Nevada does not require that you dissolve and wind up the existing entity’s affairs in order to do so. Instead, a conversion is seen as continuation of the converting entity. Further, if you own a California corporation, you may convert it to a Nevada Corporation or a Nevada LLC. However, the non-Nevada jurisdiction must have a reciprocal statute or regulation to allow the process to take place. Basically, California would need to be on board with the conversion. In this situation, a Conversion does not end the existence of the converting entity, but continues its existence in a new jurisdiction and/or form. However, it is important to note that the foreign jurisdiction from which you are converting (aka California) may have requirements that need to be met before they will legally recognize the conversion.
Here’s the tricky part. A Conversion must be evidenced by the adoption of a written “plan of conversion.” The plan is not terribly complicated, but must generally be approved by the board of directors and shareholders of a corporation, or the members of an LLC. The plan must also contain certain statutorily required elements, and may contain certain optional ones. Finally, you must file “Articles of Conversion” with the Nevada Secretary of State to effectuate the Conversion, and the Articles must include the resulting entity’s charter documents (aka Articles of Incorporation or Articles of Organization, and all amendments thereto), and other statutorily required provisions.
A Domestication is a statutory process that permits a foreign entity (aka a business not organized under Nevada law) to domesticate in the state of Nevada. This means that the entity will be recognized as an entity properly formed pursuant to Nevada laws, and the newly domesticated entity is deemed to exist as of the date it was originally organized in the foreign jurisdiction.
A couple of things here. Domestication of an entity in Nevada provides that entity with a choice on how it continues its existence. The choices are:
- The newly domesticated entity may cease all operations in its original jurisdiction, and continue only in Nevada (in which case the Domestication is functionally identical to a Conversion); or
- The newly domesticated entity may commence existing as a Nevada business, while still existing and operating in the foreign jurisdiction form which it domesticated.
If option 2 is selected, the foreign jurisdiction may require the newly domesticated Nevada entity to file as a foreign entity to continue to conduct business in that jurisdiction.
Now, unlike a Conversion, a Domestication does not require the adoption of a written plan. This is good news because it is one less headache for you, as business owners looking to move to Nevada. Domestication is a bit of a simpler process, but still requires approval:
- in the manner set forth in the entity’s governing documents (i.e. operating agreement or shareholder agreement), or of the board of directors and shareholders of a corporation, or the members of an LLC in the absence of such governing documents; and
- via any applicable foreign law.
Finally, you must file the following with the Nevada Secretary of State:
- Articles of Domestication;
- charter documents for the existing entity (or equivalent, if any);
- charter documents for the new entity;
- Information for the new entity’s registered agent; and
- a certificate of good standing from the foreign jurisdiction.
Again, once the Domestication process is completed, the newly domesticated entity is deemed to exist on the date it began its existence in the foreign jurisdiction in which it was originally formed.
Please note that this blog post is a quick and dirty breakdown of the Conversion and Domestication processes in Nevada, and is not intended to convey either process in its entirety. There may be more involved in either process depending on your specific situation. For more information regarding Conversions and/or Domestications, please feel free to contact our office, Bongiovi Law Firm at 702-485-1200.