Since tax considerations are of utmost importance in choosing an entity form, entrepreneurs should determine the advantages of beginning their business as a LLC. In particular, the applicability of the LLC structure must be examined when the entity plans to go public or merge with a public corporation.
While enjoying the benefits of a LLC prior to “going public”, the conversion of a LLC to a corporation is quite seamless.
An incorporation of an LLC can follow three forms:
1. the LLC can transfer its assets to the corporation in exchange for stock;
2. the LLC can distribute its assets to its members who then contribute those assets to the corporation in exchange for stock and;
3. the members can contribute their interests to the corporation in exchange for stock.
Of course, the incorporation of the LLC can also take place as part of the initial public offering under Section 351.
Also, the LLC’s conversion to a corporation should not prevent a subsequent tax-free reorganization under Section 368 when the corporation is acquired by a public company.