Can a corporation be converted to a limited liability company or vice versa?

After the formation of a business entity, the owners may decide that it is more beneficial to do business in another form. Rather than dissolving the existing entity and forming a new entity in the desired form, with the attendant cost and hassle, most states permit one type of business entity to be converted to a different type of business entity. In California, for example, a corporation may be converted to another domestic business entity, including a limited liability company or a partnership, if certain conditions are met. Cal. Corp. Code § 1151. Likewise, another domestic or foreign business entity, including a limited liability company, may be converted to a domestic corporation if certain conditions are met. Cal. Corp. Code § 1157. A corporation that wishes to convert to a limited liability company must approve a plan of conversion setting forth various details of the plan, including the terms and conditions of the conversion and the provisions of the company’s operating agreement to which the members will be bound. Cal. Corp. Code § 1152. The plan of conversion must be approved by the board of directors of the converting corporation, and the plan’s principal terms must be approved by a majority of the corporation’s outstanding shares. Once the conversion is effective, all of the shareholders of the converting corporation are deemed to be parties to the limited liability company’s operating agreement, whether or not a shareholder executed the plan of conversion or the operating agreement, except that a dissenting shareholder who voted against the conversion may demand that the corporation purchase her shares at fair market value. Cal. Corp. Code § 1159.