Corporation to LLC: North Dakota Conversion Guide 2024

How to Convert Corporation to LLC in North Dakota

The decision to convert a corporation to an LLC in North Dakota can provide numerous benefits, including improved tax flexibility, simplified management, and reduced compliance burdens. If you’re considering this strategic move, our comprehensive guide will support you through the process of starting an LLC in North Dakota, equipping you with the knowledge to successfully convert your corporation to an LLC in North Dakota.

At LLCBase, we aim to make the transition as smooth as possible by providing a step-by-step guide that covers legal requirements, tax implications, and necessary paperwork. Let’s explore the exciting world of corporation-to-LLC conversions in the dynamic North Dakota business landscape!

What are a Corporation and an LLC

A corporation is a type of business structure that is a separate legal entity from its owners, known as shareholders. This legal distinction provides shareholders with limited liability protection, meaning their personal assets are not at risk in the event of the corporation’s debts or legal issues. Corporations are subject to more stringent regulations and requirements than other business structures, such as keeping detailed records, holding annual meetings, and filing separate tax returns. Corporations can also issue shares of stock to raise capital and can exist perpetually beyond the life of their owners.

On the other hand, an LLC, or Limited Liability Company, combines a corporation’s limited liability protection with the operational flexibility of a partnership or sole proprietorship. In an LLC, the business owner, known as a member, has personal liability protection, meaning their personal assets are not at risk in case of the business’s debts or legal issues. LLCs also have flexible tax options, as they can be taxed as a pass-through entity (like a sole proprietorship or partnership) or a corporation. This type of business structure is more straightforward to set up and manage than a corporation and offers legal and tax benefits for the owner.

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9 Steps to Convert From Corporation to LLC

Converting your corporation to an LLC in North Dakota is made simple with our 9-step process. By following these steps, you’ll receive expert guidance through each conversion stage, ensuring a smooth and efficient transition for your business.

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If you decide to do it yourself, just follow the following steps of converting a corporation to an LLC below:

Step 1: Research North Dakota LLC Conversion Laws

Before starting the process, it’s essential to understand the specific laws and regulations governing LLC conversions in your state. To gather accurate information, visit your state’s North Dakota Secretary of State website and other government resources, such as the North Dakota Office of State Tax Commissioner and North Dakota Secretary of State. These resources will provide the necessary guidelines, requirements, and forms for converting a corporation into an LLC in North Dakota.

As you research, you must familiarize yourself with required fees, such as the $135, which may vary depending on the state. Additionally, take note of any relevant tax rates that may apply to your new LLC, including the 1.41-4.31% income tax and 5.00% sales tax. Understanding these tax rates will help you make informed decisions about your business structure and ensure that your conversion to an LLC in North Dakota complies with all state-specific tax laws.

In some cases, additional requirements or regulations may apply to specific industries or business activities. Be sure to research industry-specific regulations and consult an attorney if you have questions about your situation.

Overall, thorough research is critical for successfully converting your corporation to an LLC in North Dakota. By understanding the state-specific laws and requirements, you’ll be better prepared to navigate the conversion process and make the transition as seamless as possible.

Step 2: Determine the Type of Conversion

In some states, you can convert a corporation to an LLC using either statutory conversion or statutory merger. These two methods have distinct processes and requirements, so it’s crucial to research their differences and choose the best fit for your situation.

A statutory conversion is a more straightforward process wherein a corporation directly converts into an LLC. This method typically involves filing Articles of Conversion with the North Dakota Secretary of State and paying the associated state incorporation fee. 

On the other hand, a statutory merger involves merging the existing corporation with a newly formed LLC, effectively transferring the corporation’s assets and liabilities to the LLC. This process may require additional documentation, such as a Plan of Merger or Articles of Merger, and might be subject to a separate fee.

Factors to consider when choosing between these two methods include the complexity of the process and if the two methods, online and by mail is available in your state. Additionally, take note of the associated incorporation fee of$100 for online and by mail filing, as this may impact your decision.

If you need more clarification or are trying to decide which conversion method is best for your situation, consult a business attorney. They can help you navigate the complexities of the process and ensure that you comply with all state-specific laws and regulations for converting a corporation to an LLC in North Dakota.

Step 3: Hold a Shareholder Meeting

Notifying all corporation shareholders about your plans to convert to an LLC in North Dakota is crucial in the conversion process. To do this, schedule a shareholder meeting to discuss the conversion, its benefits, and potential challenges. Ensure that you provide adequate notice to all shareholders as required by your corporation’s bylaws or state regulations.

During the meeting, present your case for converting the corporation to an LLC, addressing any concerns or questions from shareholders. Depending on your corporation’s bylaws and North Dakota regulations, you may need to obtain approval from a specific percentage of shareholders (voting threshold) to proceed with the conversion.

It’s essential to document the meeting minutes accurately, including the details of discussions, any voting results, and the resolutions approving the conversion. These records may be required when filing the Certificate of Good Standing and any necessary Amended Certificate of Authority documents with the North Dakota Secretary of State. Proper documentation can also help protect the company and its shareholders in case of any future disputes or legal issues related to the conversion.

Step 4: File the Necessary Documents

Once you have determined the type of conversion and obtained shareholder approval, the next step is to file the required documents with the North Dakota Secretary of State. Depending on the conversion method you’ve chosen, the forms you need to submit may vary:

  1. Statutory Conversion: If using this method, file the Articles of Conversion, which provide details about your corporation and the new LLC, including the name, principal address, and Registered Agent information. 
  2. Statutory Merger: In this case, you’ll need to submit a Certificate of Merger or similar document outlining the merging entities, the surviving LLC’s name and structure, and the terms and conditions of the merger.

Be sure to include all necessary information in these documents and double-check for accuracy to avoid any delays or issues during the filing process. When submitting your paperwork, pay the required fees, such as the $135.

In addition to the conversion documents, ensure you meet the state name reservation period of 1 year requirements for reserving your new LLC’s name. Depending on your state’s regulations, you may need to pay the $10 or $10 to reserve your desired name. Remember that some states may have specific naming conventions or restrictions for LLCs that you need to follow.

Step 5: Create an LLC Operating Agreement

Draft an operating agreement for your new North Dakota LLC. This document outlines your LLC’s management structure, ownership, and operational rules. While not always legally required, having a well-drafted operating agreement is crucial for protecting your business, establishing clear guidelines, and avoiding future disputes among members.

When creating your LLC operating agreement, be sure to address the following items specific to your North Dakota:

  • Annual report requirements: Detail the frequency and deadlines for filing an annual report in North Dakota, if applicable. In North Dakota, the annual report must be filed every 1 year (15th November every year). Clarify the information required for these reports and assign responsibility for their timely submission.
  • Annual fee obligations: Specify the $50 that your LLC must pay to maintain its good standing in North Dakota. Outline the payment process, including relevant deadlines and the party responsible for payment.
  • Franchise tax: Your North Dakota LLC is subject to an annual franchise tax of No franchise tax, including information about the tax rate, calculation method, filing deadlines, and payment procedures. Make it clear which member or manager is responsible for managing and submitting the franchise tax payments.
  • Franchise tax penalty: If your LLC fails to submit the annual franchise tax on time, outline the potential late filing fees and penalties that may apply. In North Dakota, the penalty for late filing of franchise tax is in North Dakota, there is no late filing.  Specify the procedure for addressing late payments and resolving any issues with the North Dakota tax office.

Addressing these critical aspects in your operating agreement ensures that your North Dakota LLC remains compliant with all state regulations and requirements, minimizing the risk of penalties or disputes among members.

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Step 6: Obtain New EIN

Apply for a new EIN from the IRS for your North Dakota LLC. This unique nine-digit number is assigned to your business for tax, reporting purposes, and other essential functions. You can apply for an EIN online through the IRS website, which is often the fastest and most convenient method. Alternatively, you may apply via mail or fax by submitting Form SS-4, depending on your preference and the urgency of your application.

Once you have obtained your new EIN, updating all relevant tax and business documents with your new number is crucial. This includes updating the Tax Exemption Application filed with the North Dakota Office of State Tax Commissioner to ensure accurate reporting and compliance with North Dakota tax regulations. Additionally, update any other federal, state, and local tax forms or registrations that require your EIN, such as payroll tax filings, sales tax permits, and any required business licenses or permits.

Inform your bank, financial institutions, and other relevant parties of your new EIN to ensure all accounts, loans, and financial transactions are associated with your North Dakota LLC’s correct tax identification number.

By obtaining a new EIN and updating all relevant documents and accounts, you can ensure a smooth transition of your business operations under your new North Dakota LLC structure, maintaining compliance with all tax and reporting requirements.

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Step 7: Update Licenses and Permits

Notify all relevant federal, state, and local agencies of your business’s conversion to an LLC in North Dakota. This includes but is not limited to, the North Dakota Secretary of State, the  Job Service North Dakota, the North Dakota Secretary of State, the North Dakota Office of State Tax Commissioner, and any other regulatory bodies overseeing your industry or business activities. Informing these agencies of your new LLC structure ensures that your business remains compliant with all applicable regulations and maintains accurate records.

Update any North Dakota licenses, permits, or registrations your business holds to reflect your new North Dakota LLC structure and ownership. This may involve applying for new licenses or permits, transferring existing ones, or amending the information on file with the issuing agencies. Review the specific requirements and procedures for each license or permit, as these may vary between federal, state, and local levels.

In addition to updating your licenses and permits, you may need to update your information with the North Dakota Secretary of State. This could include filing an amendment to your Articles of Organization  or notifying the North Dakota Secretary of State of changes to your Registered Agent or business address. Consult the North Dakota Secretary of State website or contact their office for guidance on updating your business’s information following the conversion to an LLC.

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Step 8: Inform Creditors and Other Stakeholders

Notify all creditors, suppliers, customers, and other stakeholders of your corporation’s conversion to an North Dakota LLC. This ensures they know the change and can update their records, contracts, and invoices accordingly. Be transparent and proactive in communicating this information to maintain trust and minimize potential disruptions to your business relationships.

Be prepared to provide these parties with any necessary documentation related to the conversion, such as your new EIN, updated operating agreement, or new licenses and permits. Providing this information on time can help facilitate a smooth transition and keep your business operations running smoothly.

Step 9: Close the Corporation

After completing the conversion process and successfully establishing your new North Dakota LLC, you may be required to dissolve the corporation formally. Dissolving the corporation ensures that it is no longer considered a separate legal entity and releases you from any ongoing compliance obligations related to the corporation.

Follow your state’s guidelines for dissolving a corporation in North Dakota, which can typically be found on the North Dakota Secretary of State website or by contacting their office. The process may involve submitting a Certificate of Dissolution or similar document and any required fees.

As part of the dissolution process, you may need to file a final tax return for the corporation, settle any outstanding debts or liabilities, and distribute the remaining assets to shareholders by your corporation’s bylaws or state law. Consult with legal and financial advisors to ensure you complete all necessary steps to dissolve the corporation properly and comply with your state’s regulations.

By diligently informing all stakeholders of your corporation’s conversion to an North Dakota LLC and formally dissolving the corporation, you can ensure a seamless transition and protect your business interests as you move forward under the new LLC structure.

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Why Change from Corporation to LLC in North Dakota

While both entities offer limited liability protection to their owners, there are several reasons why converting to an LLC may be beneficial. Let’s explore why business owners may change from a corporation to an LLC in North Dakota.

  • Tax Flexibility: One of the most significant advantages of an LLC over a corporation is its tax flexibility. By default, LLCs are considered pass-through entities for tax purposes, meaning that the company’s profits and losses are passed through to its members, who report them on their personal income tax returns. This avoids the double taxation faced by corporations, where profits are taxed at the corporate level and again at the individual level when dividends are distributed to shareholders. By converting to an LLC in North Dakota, business owners can take advantage of pass-through taxation, potentially resulting in significant tax savings. Also, LLCs can be taxed as a corporation if it becomes more advantageous.
  • Simplified Management Structure: LLCs offer a more flexible and straightforward management structure than corporations. While corporations require a board of directors to oversee the company’s operations and make major decisions, LLCs can be managed directly by their members (member-managed) or appoint managers to oversee business operations (manager-managed). By converting to an LLC in North Dakota, business owners can streamline their company’s management structure and reduce the administrative burden associated with maintaining a board of directors, holding shareholder meetings, and keeping minutes of all corporate meetings.
  • Fewer Compliance Requirements: LLCs typically have fewer compliance requirements than corporations, making them easier to maintain and manage. For example, LLCs can hold annual meetings, maintain a board of directors, or adhere to corporations’ formalities. By converting to an LLC in North Dakota, business owners can reduce the time and resources spent on meeting various compliance requirements, allowing them to focus more on their core business operations.
  • Increased Asset Protection: LLCs may offer additional asset protection benefits in some states than corporations. For example, some states provide charging order protection for LLCs, which limits a creditor’s ability to seize a member’s ownership interest in the LLC. This can be particularly important for business owners concerned about protecting their personal assets from potential business liabilities. By converting to an LLC in North Dakota, business owners may be able to take advantage of these additional asset protection benefits, depending on the specific regulations in North Dakota.
  • Customizable Operating Agreement: LLCs can create a customized operating agreement that outlines the company’s management structure, ownership, and operational rules. This allows business owners to tailor the agreement to suit their specific needs and preferences instead of the more rigid bylaws required by corporations. By converting to an LLC in North Dakota, business owners can create an operating agreement that better aligns with their business goals and desired management structure.

FAQs

What is the process of converting a corporation to an LLC in North Dakota?
In North Dakota, the process of converting a corporation to an LLC involves filing a Certificate of Conversion with the Secretary of State.
What is a Certificate of Conversion?
In North Dakota, a Certificate of Conversion is a legal document that officially converts a corporation to an LLC.
What are the advantages of converting a corporation to an LLC in North Dakota?
The advantages of converting a corporation to an LLC in North Dakota include, among others, reduced liability, flexible management, and tax advantages.
What fees are involved in converting a corporation to an LLC in North Dakota?
In North Dakota, the fee for filing a Certificate of Conversion is $100.
Do I need to obtain any special licenses or permits to convert a corporation to an LLC in North Dakota?
No, you do not need any special licenses or permits to convert a corporation to an LLC in North Dakota.
What forms do I need to file to convert a corporation to an LLC in North Dakota?
In North Dakota, you need to file a Certificate of Conversion, along with any other required documents, such as new articles of organization.
Do I need to obtain a new EIN after converting a corporation to an LLC in North Dakota?
No, you can continue to use your original EIN after converting a corporation to an LLC in North Dakota.
Can I convert a foreign corporation to an LLC in North Dakota?
Yes, you can convert a foreign corporation to an LLC in North Dakota, as long as the conversion is allowed by the laws of the foreign state.
Is there a deadline for completing the conversion process in North Dakota?
No, there is no deadline for completing the conversion process in North Dakota.
Will the conversion affect my corporation’s contracts and agreements in North Dakota?
Generally, the conversion should not affect your corporation’s contracts and agreements in North Dakota, but you should review them to ensure that they remain valid and enforceable after the conversion.
Will creditors be notified of the conversion in North Dakota?
North Dakota law does not require that creditors be notified of the conversion, but you may choose to do so.
Will I need to transfer my corporation’s assets to the new LLC after the conversion in North Dakota?
No, the assets transfer automatically in North Dakotan corporations.
Can I convert a non-profit corporation to an LLC in North Dakota?
Yes, you can convert a non-profit corporation to an LLC in North Dakota, but you should consult with an attorney or accountant to see if there are any legal or tax implications.
What is the effect on employment relationships after conversion in North Dakota?
Generally, there should not be any effect on employment relationships after conversion in North Dakota.
Will the conversion affect stock ownership in my corporation in North Dakota?
Yes, stock ownership will generally be converted into membership interests in the new LLC in North Dakota.
What happens to my corporation’s debts after the conversion in North Dakota?
Your corporation’s debts generally continue after the conversion in North Dakota, but they are now the to the new LLC of then disappeared corporation.
Can I convert my corporation to an LLC if it is suspended in North Dakota?
No. Your corporation must be in good standing with the North Dakota Secretary of State to qualify for conversion.
How long will it take to process my paperwork for conversion in North Dakota?
Processing times vary, but this generally take around 5-7 business days in North Dakota.
Do I need to notify the IRS of my corporation’s conversion to an LLC in North Dakota?
No, there is no requirement to notify the IRS of the conversion, but you may need to file a final tax return for your corporation.
What happens to the corporation name after conversion in North Dakota?
In North Dakota, the corporation name becomes the name of the LLC unless you choose a new name for the LLC.
Can I reserve a name for my new LLC before conversion in North Dakota?
Yes, you can reserve a name for your new LLC before conversion in North Dakota.
Will I need to register my new LLC for state taxes after the conversion in North Dakota?
Yes, you will need to register your new LLC for state taxes after the conversion in North Dakota.
Can I revert to a corporation after converting to an LLC in North Dakota?
Yes, but the process generally requires dissolving the LLC and filing new incorporation paperwork with the Secretary of State in North Dakota.
Will the conversion affect my corporation’s intellectual property in North Dakota?
Generally, the conversion should not affect your corporation’s intellectual property in North Dakota, but you should have an attorney conduct a review.
Will shareholders be affected by the conversion in North Dakota?
Yes, the shareholders will become the LLC’s members after the conversion in North Dakota.
What information do I need to provide in the Certificate of Conversion in North Dakota?
In North Dakota, the Certificate of Conversion must include the names and addresses of the corporation and LLC, the effective date of the conversion, and any additional information required by the Secretary of State.
Can I have ownership interests (membership interests) and also have shareholders in my LLC after the conversion in North Dakota?
Yes, you can have shareholders who also hold membership interests in your LLC after converting a corporation to an LLC in North Dakota.
What obligations are required after the conversion from corporation to an LLC regarding financial statements?
In North Dakota it is required to keep and maintain adequate books and records when converting from a corporation to an LLC. Financial reports should be generated according to LLC’s reporting policies after conversion.
What documents should be given to DAC, after the conversion?
After conversion, North Dakota requires you to deliver one or more documents like a certificate of dissolution to the Secretary of State.
What is the process to convert a corporation to an LLC in North Dakota?
The process involves dissolving the corporation and filing articles of organization for the LLC.
Can any corporation be converted to an LLC in North Dakota?
Yes, any corporation is eligible to convert to an LLC in North Dakota.
Is it necessary to get approval from shareholders before converting a corporation to an LLC in North Dakota?
Yes, shareholder approval is required before initiating the process.
What are the possible reasons to convert a corporation to an LLC in North Dakota?
The reasons can be tax savings, reduced paperwork, and simplicity of management, among others.
What is the minimum number of members required to form an LLC in North Dakota?
An LLC can be formed in North Dakota with only one member.
What is the maximum number of members that an LLC can have in North Dakota?
There is no maximum limit on the number of members that an LLC can have in North Dakota.
Is there any limitation on who can become a member of an LLC in North Dakota?
No, anyone can become a member of an LLC in North Dakota, including individuals and other companies.
Do I need a registered agent for my LLC in North Dakota?
Yes, every LLC is required to have a registered agent in North Dakota.
Can I act as the registered agent for my LLC in North Dakota?
Yes, you can act as the registered agent for your LLC in North Dakota.
Should I inform the North Dakota Secretary of State if I change my registered agent?
Yes, you should inform the North Dakota Secretary of State if you change your registered agent.
Is there any fee involved in converting a corporation to an LLC in North Dakota?
Yes, there is a fee involved to file the articles of organization for the LLC in North Dakota.
How much is the fee to file articles of organization for an LLC in North Dakota?
The fee to file articles of organization for an LLC in North Dakota is $135.
How much time does it take to convert a corporation to an LLC in North Dakota?
It can take up to two to three weeks to process the articles of organization and officially convert the corporation to an LLC in North Dakota.
Will the IRS treat the LLC as a new entity after conversion from a corporation in North Dakota?
Yes, the LLC will be treated as a new entity for federal tax purposes after conversion.
Do I need to obtain a new EIN for my LLC after conversion in North Dakota?
Yes, you will need to apply for a new EIN for your LLC after conversion in North Dakota.
Can I continue to use the name of the corporation for my LLC after conversion in North Dakota?
No, you will need to obtain a new name for your LLC after conversion in North Dakota.
Can I continue doing business with the same vendor/supplier after conversion of a corporation to an LLC in North Dakota?
Generally, yes. You can continue doing business with your vendors/suppliers after the conversion as long as they agree in writing or through a new contact.
Do I need to get a new business license after the conversion from a corporation to an LLC in North Dakota?
You may need Depending on your business type or industry and local jurisdictions, a new business license or permit maye be needed in North Dakota after the conversion from a corporation to an LLC
Will I need to pay North Dakota franchise tax for my LLC after conversion from a corporation?
Yes, as an LLC you may still be still subject to pay North Dakota franchise tax.
What if I change my mind after starting the conversion process from a corporation to an LLC in North Dakota?
You can relinquish your plans for conversion of company following the process laid down by respective authority within designated time.
Will I need to update my contracts after the conversion from a corporation to an LLC in North Dakota?
Yes, it is advisable to update your contracts after the conversion from a corporation to an LLC in North Dakota.
Will I need to update my bank accounts after conversion from a corporation to an LLC in North Dakota?
Yes, you will need to update your bank accounts with the new name and EIN after the conversion in North Dakota.
Will I need to file any document regarding liabilities after conversion from a corporation to an LLC in North Dakota?
Yes, a statement of authority noting authority over pre-conversion claims, pending actions and unfiled suits might need to be shown after conversion in North Dakota.
Do I need to update my insurance policies after conversion of a corporation to an LLC in North Dakota?
Yes, you need to update your insurance policies with the new legal name and other relevant information of your LLC after the conversion in North Dakota.
What if my corporation is in violation of any law or non-compliant to taxes while being transformed into an LLC?
If your corporation is dubious or on the incorrect part of law transferring it to LLC doesn’t necessarily remove the violations and charges.
What steps should I take if my converted LLC comes under an audit of the previous corporation in North Dakota?
Your converted LLC receives an IRS audit in an audit if there is a backlog of taxes or legal issues from the state’s previous liabilities.
Can I hire employees for my LLC in North Dakota after conversion from a corporation?
Yes, you can hire employees for your LLC in North Dakota after conversion from a corporation.
Will the conversion from a corporation to an LLC in North Dakota lead to the termination of employee contracts?
Answer:No, your LLC can continue, assuming existing obligations and contracts of corporations till they are in line with States’ law.
Can I also apply for a unified business identifier (UBI) number during the LLC’s formation or conversion in North Dakota?
The legal business entity conversion also qualifies as an application under Washington Business Hub to get a UBI number for tax purposes as the mandatory step for every new LLC in North Dakota.

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Conclusion

Converting a corporation to an LLC in North Dakota can offer numerous advantages, including tax flexibility, simplified management, and reduced compliance requirements. By following the steps outlined in this article, you can successfully navigate the conversion process and unlock the full potential of your new North Dakota LLC. To learn more about LLC formation, compliance, and other essential business topics, visit LLCBase and explore our resources to help you build a thriving and compliant business. Don’t miss out on the benefits of an North Dakota LLC – take the first step in your business transformation journey today!

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