How to Convert a Corporation to an LLC in Florida
How to convert a corporation to an LLC in Florida is something worth knowing if you want to avoid double taxation or adopt a more flexible business structure.3 min read
2. Steps for Converting a Corporation to an LLC
3. Understanding the Conversion Procedure
How to convert a corporation to an LLC in Florida is something worth knowing if you want to avoid double taxation or adopt a more flexible business structure. It is possible to change the legal structure of a business from a corporation to an LLC without having to dissolve the company first. In Florida, the conversion process is relatively easy and straightforward, but it is best handled by an experienced attorney.
Filing a Conversion in Florida
Conversion refers to the process of changing a business' entity type or home state. It can be complex if the business is registered in more than one state. In Florida, both domestic and foreign corporations can be converted to LLCs. Filing information is available at the Florida Department of State's Division of Corporations. The conversion fee is $35 plus a fee for new entity filing if applicable.
Steps for Converting a Corporation to an LLC
An LLC is a form of business organization that is authorized by the statutes of a state. The main advantage an LLC has over a corporation is that it enjoys pass-through taxation. In a corporation, profits are taxed twice, once when they are earned and again when they are distributed to the shareholders. In an LLC, profits earned by the company are not subject to tax.
If you want to convert a corporation to an LLC but do not wish to dissolve the company, you have to file the Certificate of Conversion with the agency in your state that handles the registration of business organizations.
Step 1 - Check with the business filing agency in your state to find out if they allow businesses to change their entity types. Most states have laws that allow the conversion of a corporation to an LLC without the need to dissolve the company or form a separate LLC.
Step 2 - Elect to convert your corporation to an LLC. If there is an applicable voting clause in your corporation's articles of incorporation or bylaws, you should follow those rules. If there is no such clause, you may need a majority vote from every class of stockholders to proceed with the conversion to an LLC.
Step 3 - Get a Certificate of Conversion form from your state's business filing agency. This form is usually available on the website of the business filing agency. If it is not, contact the agency's office to get one.
Step 4 - Complete the Certificate of Conversion form. Generally, a Certificate of Conversion form requires the following information:
- Name of corporation
- Name and address of the registered agent of the corporation
- Whether the day-to-day operations of the LLC will be managed by members with ownership stake or managers who are employees
- Name of the new LLC
- Registered agent of the LLC
- Copy of the new LLC's articles of organization
Step 5 – Submit the Certificate of Conversion. The fee for filing a Certificate of Conversion varies from one state to another, ranging from $50 to $300.
Understanding the Conversion Procedure
Due to some modifications to Florida business law, a corporation can be relatively painlessly converted to another entity type with a competent attorney carefully preparing all the required documents for public filing. A properly completed conversion will result in an LLC that is suitable for all purposes and the same legal entity as the corporation. It may not have to change its tax identification number. On the other hand, if it is not properly handled, a conversion can lead to certain undesirable consequences.
For instance, the IRS may regard the conversion of a corporation to an LLC as an act of liquidating and distributing assets to the shareholders, who in turn contributed the assets to form a new LLC. If this is the case, the hypothetical “gains” of appreciated assets may be subject to tax. Nonetheless, this treatment can be avoided with a properly structured conversion that qualifies as a tax-free reorganization.
Since it is a hybrid entity, an LLC can elect to be taxed as a sole proprietorship, partnership, C corp, or S corp. As such, a partnership can become an LLC that is taxed as a partnership, and an S corporation may convert to an LLC that continues to pay taxes as an S corp.
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