Conversion of a limited liability company into a corporation: challenges and practical solutions

The conversion of a limited liability company into a corporation can be an important strategic step for companies, offering new growth opportunities and the possibility of raising additional capital. At the same time, practice shows that the conversion process often brings unexpected challenges that are associated with considerable financial and administrative expenses. This is particularly true for smaller companies, where the minimum capital requirements and the associated capital increase represent a difficult barrier.

The conversion of a limited liability company into a corporation is essentially carried out as follows: First, the management must draw up a conversion plan and a conversion report. This is followed by an audit of the required documents (conversion balance sheet, conversion plan and conversion report) by a licensed audit expert and the inspection procedure. The process is completed by the resolution to convert at a shareholders’ meeting and the subsequent entry in the commercial register.

This supposedly clearly regulated process is complicated if the limited liability company does not have the required share capital of CHF 100’000. In this case, a capital increase is necessary in order to fulfill the minimum requirements for a corporation. For reasons of efficiency, this capital increase should be carried out at the same time as the conversion where possible. As a rule, this is not only a challenging task in terms of coordination, but also a financial hurdle if the capital increase cannot be carried out in cash due to a lack of personal funds on the part of the shareholders.

To ensure that the conversion of a limited liability company does not fail due to a lack of personal funds on the part of the shareholders, there are two possible solutions. Firstly, the capital increase can be carried out by converting existing company loans into equity, whereby it should be noted that the creditor of the company loan in question becomes a shareholder as a result. Secondly, the capital increase can be carried out by using the company’s freely available equity, whereby it must be ensured that this is shown in the current annual balance sheet. If this is not the case, but the company is expected to have freely usable equity based on the course of business in the current financial year, the required capital can also be demonstrated by interim financial statements that have yet to be prepared.

In summary, it should be noted that limited liability companies planning to convert their legal form into a corporation should not underestimate the financial challenges. Smaller limited liability companies in particular must expect a capital increase, which requires careful planning. A precise financing strategy is crucial for the conversion process to be successful.

If you are considering converting your limited liability company into a corporation and need support, we will be happy to assist you.