Structure
C Co is a corporation incorporated under the Delaware General Corporation Law (“DGCL”) which is wholly-owned (through the ownership of all its par value common shares) by B Co, which is a Canadian-resident unlimited liability corporation.
Continuation under Delaware law
Ss. 266(f) of the DGCL provide that the conversion of a domestic corporation, such as C Co, to an LLC shall not constitute a dissolution of the corporation, and that upon conversion, the other business form shall, for all purposes of the laws of Delaware, be deemed to be the same entity as the corporation. Ss. 8-214(d) and (g) of the Delaware Limited Liability Company Act (“DLLCA”) provide that the existence of the LLC shall be deemed to have commenced on the date the other entity was first incorporated and that the LLC shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the converting entity.
Proposed transactions
With the approval of its shareholder (B Co), C Co will file a certificate of formation under the DLLCA, and a certificate of conversion under the DGCL and DLLCA, so that all property and debts of C Co become vested in the LLC. As a consequence of the conversion, all the C Co common shares become LLC common shares. The LLC makes a check the box election to be treated as a corporation for Code purposes effective on its date of formation.
Rulings
Following the conversion, C Co will be considered to be the same corporation as before the conversion, it will not be considered to have thereby disposed of its assets, and B Co will not be considered to have disposed of its C Co shares, which will have the same ACB.
CRA reasons (in summary)
The Delaware legislation treats the LLC as a continuation of the converting corporation and the LLC is a corporation for purposes of the Act.