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.