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LLC CONVERSIONS PRIOR TO VC OFFERINGS

For various reasons, many or most venture capital investors still prefer that the entities they invest in be taxed and/or structured as state law C corporations.  Many times, start‑up ventures who ultimately seek VC investors are initially organized as limited liability companies.  Prior to undertaking VC offerings, these LLCs often seek to "convert" themselves into state law corporations.

This change can be accomplished in Ohio through a "conversion".  First, the LLC must enact a written declaration of conversion.  This declaration must be approved by the LLC members unless the company is manager-managed.  All of the company members, whether voting or non‑voting, are entitled to notice of any meeting of the members to adopt the declaration of conversion.  This notice must be accompanied by either a copy or summary of the important provisions of the declaration of conversion.  A unanimous vote or action by the members is required to approve the declaration unless the operating agreement specifies a different number or proportion.  If and when this approval is obtained, the LLC must file a certificate of conversion with the Ohio Secretary of State's office containing the organizational documents of the converted entity.

Once the above steps are completed, along with the organizational documents of the new corporation, the former LLC can begin to function as a corporation and undertake its venture capital offering.



BACKGROUND OF AUTHOR

Mr. Petrony graduated with a Bachelor of Arts degree, summa cum laude, from Youngstown State University. Subsequently, he obtained a law degree from the Ohio State University College of Law.

Mr. Petrony practices law at The Law Offices of John F. Petrony, LLC in Poland, Ohio. He maintains a transactional practice with a primary emphasis in the fields of business law and real estate law. The business law portion of his practice is comprised, in large part, of the following areas:

  1. Business Sales and Acquisitions
  2. Mergers, Reorganizations and Conversions
  3. Commercial Transactions
  4. Limited Liability Company Law
  5. Corporate Law
  6. Business Formations
  7. Employment Law
  8. Franchise Law
  9. Internet Law
  10. Business Dissolutions
Mr. Petrony is a member of the following:

  • Ohio State Bar Association LLC Committee. This committee is responsible for drafting and amending Ohio’s LLC statute.
  • American Bar Association Committee on Partnerships and Unincorporated Business Organizations. This group participates in drafting model limited liability company and partnership legislation for use by the states.
  • Negotiated Acquisitions Committee of the American Bar Association. This committee, amongst other things, drafts model agreements for use in negotiating and documenting business acquisitions, mergers and reorganizations.
Lastly, Mr. Petrony frequently lectures on the topics of business law issues. He has presented seminars on behalf of a variety of local and national organizations, including, but not limited to, the National Business Institute and the Mahoning County Bar Association. Should you desire an in-house seminar on these issues to your group or organization, please let John know.

THE BUSINESS LAW ALERT IS INTENDED TO CONVEY GENERAL INFORMATION ABOUT BUSINESS LAW DEVELOPMENTS. THE ALERT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS, LEGAL ADVICE OR A LEGAL OPINION THAT CAN BE USED TO SOLVE INDIVIDUAL PROBLEMS IN ANY MANNER OR NATURE WHATSOEVER. MOREOVER, THE ALERT IS NOT AN OFFER OR SOLICITATION TO REPRESENT ITS RECIPIENTS, NOR IS IT INTENDED TO CREATE AN ATTORNEY/CLIENT RELATIONSHIP.

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