Business Entity Conversion in Florida: What to Know

Business Entity Conversion in Florida: What to Know

Business entity conversions can be confusing. What steps do I need to take? Who do I send the paperwork to? What will my taxes be like? Here’s a brief overview of your different options.

Sole Proprietorship to Another Entity

When you start doing business as an individual, you are by default considered to be a sole proprietorship. If you’re interested in a business entity conversion, all you need to do is form the entity and contribute capital. Those wishing to form a general partnership only need to sign a Partnership Agreement. However, if you want a more advanced entity such as a Corporation or a Limited Liability Company (LLC), you will need to file either Articles of Incorporation (for a corporation) or Articles of Organization (for an LLC) along with any appropriate paperwork. You must also establish Bylaws and hold formal meetings of shareholders should you ultimately decide on a corporate structure.

General Partnership or LLC to Corporation

The business entity conversion process gets a little more complicated when dealing with formalized entities such as General Partnerships or LLCs. Florida offers what is known as “statutory conversion.” This transfers your previous assets and liabilities to the new corporation. This requires that you prepare a plan of conversion including your Articles of Incorporation for submission to the Department of State along with a certificate of conversion. The form for converting your Florida Partnership or LLC to a corporation can be found on Florida’s Division of Corporations website here.

Converting a Corporation to an LLC

Florida law allows for Corporations to “statutorily convert” to an LLC in a process similar to the one detailed above. The key difference with this business entity conversion comes down to taxation. For example, moving from a C-Corporation over to an LLC that is taxed as a Sole Proprietorship or General Partnership can actually lead to higher taxes. The reason for this is that the IRS considers this to be a liquidation of the corporation and its assets. As such, a tax will be owed on the value of the corporation. The corporation’s shareholders will also be taxed on any corporate assets that the IRS assumes were distributed to them.

Converting a Corporation or LLC to a Partnership or Sole Proprietorship

This is one of the easier business entity conversions to manage. In most cases, you will just need to dissolve and liquidate the assets of your Corporation or LLC while distributing the assets to its owners and/or shareholders. Upon restarting your business, you will immediately be considered as a Sole Proprietorship. To transfer over to a General Partnership, however, any and all partners will need to draft and sign a partnership agreement.

Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling (727) 279-5037.