What does the term conversion refer to in the context of business entities?

• A. Selling the business to a third party.
• B. Merging with another corporation.
• C. Changing from one entity form or tax status to another.
• D. Entering into a joint venture.

Answer: (C)

Conversion means changing the legal form or tax classification of an existing business entity, while its underlying existence and ongoing operations continue. This is done through a formal plan and state filings, and it typically requires approval by the owners or members. Examples include reorganizing an LLC into a corporation, converting a corporation into an LLC, or changing how the entity is taxed (within allowed options, such as moving from a C corporation to an S corporation). This is different from selling the business to someone else, which transfers ownership and ends the current form; or merging with another company, which creates a new or absorbed entity; or forming a separate joint venture, which creates a distinct enterprise. The essence is a change in the entity’s form or tax status without dissolving and recreating the business from scratch.