Key Takeaways

  • Florida allows for statutory conversion from a corporation to an LLC without dissolving the entity.
  • A formal Plan of Conversion is often required before submitting the Certificate of Conversion.
  • Conversions can have significant tax implications, especially for C corporations.
  • Florida requires filing both a Certificate of Conversion and Articles of Organization.
  • Legal and tax professionals are strongly recommended to ensure compliance and tax efficiency.
  • Three main types of conversion methods exist: statutory conversion, statutory merger, and nonstatutory conversion.
  • After conversion, businesses must update contracts, licenses, and possibly obtain a new EIN.

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.

Plan of Conversion Requirements

Before filing the Certificate of Conversion in Florida, businesses must draft and approve a Plan of Conversion. This document outlines the essential details of the transition and is typically approved by a majority vote of the shareholders. The plan should include:

  • The name of the corporation and the name of the resulting LLC
  • The terms and manner of converting the corporation's shares into LLC membership interests
  • A statement confirming that the conversion has been approved according to Florida law and the entity’s governing documents

The plan itself is not filed with the Florida Department of State but must be adopted and maintained in corporate records for reference and compliance purposes.

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.

Types of Legal Conversion Methods

Florida supports statutory conversions, which are generally more straightforward than other methods. However, it's helpful to understand the three types of conversion structures recognized across various states:

  1. Statutory Conversion
    This is the simplest method available in Florida. The business files a Certificate of Conversion and Articles of Organization with the Florida Department of State. Upon approval, the business is officially an LLC and retains its legal continuity.
  2. Statutory Merger
    If a state doesn't allow direct conversions, a statutory merger may be required. In this method, a new LLC is formed, and the corporation is merged into it. Shareholders must approve the merger, and assets/liabilities are automatically transferred.
  3. Nonstatutory Conversion
    This is the most complex route, involving the formal liquidation and dissolution of the corporation and the formation of a new LLC. Assets and liabilities must be manually transferred, and new contracts established. This method may result in higher tax liability and legal fees.

Statutory conversion is generally preferred when available, such as in Florida.

Post-Conversion Steps

After filing your Certificate of Conversion and Articles of Organization, take the following steps to ensure your new LLC is legally and operationally compliant:

  • Update Business Licenses and Permits: Notify local and state agencies about the change in entity type.
  • Revise Contracts and Agreements: Amend any contracts (e.g., leases, supplier agreements, loans) that were signed under the corporate name to reflect the new LLC.
  • Update Banking Information: Inform your financial institutions of the entity change and update your bank accounts.
  • Notify the IRS: Depending on the nature of the conversion, you may need to apply for a new EIN, particularly if ownership structure changes or if converting from a C corp.
  • Draft an Operating Agreement: Although not required in Florida, it is highly recommended for defining roles, responsibilities, and procedures within the LLC.

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.

Tax Implications of Conversion

One of the most critical considerations in a change from corporation to LLC is the potential tax impact. Here are key points to consider:

  • Double Taxation for C Corporations: Converting a C corporation to an LLC is generally treated as a liquidation. The corporation is taxed on the “sale” of its assets, and shareholders are taxed again on asset distribution. This can trigger substantial capital gains.
  • S Corporations Have Less Impact: If your corporation has elected S corp status, tax implications may be reduced, especially if the LLC is structured to retain pass-through taxation. However, there could still be gains if appreciated assets are distributed.
  • IRS Treatment of Conversion: The IRS may interpret the transaction as the corporation liquidating and distributing assets to shareholders, who then contribute those assets to form the LLC. Proper structuring with a tax advisor can help avoid this scenario or mitigate consequences.
  • EIN Considerations: A new Employer Identification Number (EIN) may be required, especially if the conversion affects the number of members or changes the tax classification.

Given the complexity of these tax consequences, it is highly recommended to consult with a tax attorney or accountant before initiating the process.

Frequently Asked Questions

Do I need to dissolve my corporation to form an LLC in Florida? No. Florida allows a statutory conversion, which means you can change from a corporation to an LLC without dissolving your corporation first.

Will I need a new EIN after converting to an LLC? Possibly. If the ownership structure or tax classification changes significantly, the IRS may require a new EIN.

Can I change from an S corporation to an LLC in Florida? Yes. You can convert an S corporation to an LLC in Florida. Depending on how the LLC is structured, it may continue to be taxed as an S corporation.

What happens to contracts and agreements after conversion? They typically remain valid, but it’s essential to notify parties of the change and amend agreements as needed to reflect the new LLC status.

What is the cheapest way to change from a corporation to an LLC? In Florida, using the statutory conversion method is generally the most cost-effective and straightforward option, provided it’s properly planned and executed.

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