If you’re considering moving your business from an LLC to a corporation, the process in Florida is relatively simple. But conversions frequently come with tax implications, which is why it’s a good idea to consult an experienced attorney before you convert your business.
Why Would You Change Your Business Entity?
Converting your company from an LLC to corporation means you need to follow a procedure as set out by your company’s state of incorporation. You should also carefully weigh those tax implications and any other pertinent obligations.
As for why you would change, things change as your business grows. Often, small businesses start out as sole proprietors and then become a business entity for the purpose of liability protection. What’s more, many businesses choose to change legal type for tax reasons. LLCs for example, are obliged to pay taxes on the business’s total net income per year. A corporation can retain some of its income, though, lowering the business’s tax bill.
Having employees can also change your business liability while going public usually requires your business to change to a corporation.
Changing from an LLC to Corporation
There are a few options for changing your LLC to a corporation, including:
- You can dissolve the LLC and form a separate corporation
- If the reason for the change is taxes, your LLC can request to be taxed as a corporation
- The LLC can become a subsidiary of a new corporation
How to Convert Your LLC to a Corporation in Florida
The details below refer to a Statutory Conversion.
1. Prepare Your Plan of Conversion
The plan should include:
- The name of the LLC
- The name of the newly formed corporation
- The terms and conditions of the conversion, especially when it comes to how LLC membership percentages are to be converted into corporate shares.
2. Approve Your Plan of Conversion
Under Florida’s law, Florida limited liability company members are to be notified in advance of any meeting where you plan to submit and vote on a Plan of Conversion. A majority of managers must submit their approval in writing for the Plan of Conversion and meeting thereon.
3. File the Articles of Incorporation and Certificate of Conversion
Both of these forms must be submitted to the Division of Corporation. Even though you’re converting an LLC, you still need to go through the process involved with forming a corporation, including electing corporate officers, drafting bylaws, and issuing the stock certificates.
What You Should Know About Florida’s Conversion Statute
The conversion statute maintains that your LLC approve the plan of conversion before you can file the certificate of conversion. You can file this with the Department of State.
LLC members are to be notified in advance of any meeting where you will submit the plan of conversion for approval. The statute requires, by default, approval in writing of a majority of LLC managers who are members of the LLC. But there are plenty of alternative voting requirements should no manager be a member. You might need to review your operating agreement to figure out the specific voting requirements for your organization.
What You’ll Find On the Certificate of Conversion
The certificate of conversion states basic information about your LLC along with that of your new corporation, including:
- The LLC’s name
- The legal of your business right now
- The state where you formed the LLC
- When you formed your LLC
- The new corporation’s name
- The effective date for the conversion from LLC to the corporation
- A statement that Florida law allows the conversion
- The signature of an authorized member of the LLC
Seeking Legal Guidance
While the certificate of conversion may seem simple enough, converting your business could pave the way for unexpected complications. That’s why it’s recommended that you consult with a knowledgeable attorney who can assist with the conversion, the relevant paperwork, and filing along with explaining the tax implications involved with moving from LLC to corporation.
If you’re thinking of changing your business, book a consultation with Principal Law Firm today.
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