The Risks of Domesticating or Converting a Delaware LLC to a Florida LLC Without a Lawyer
Relocating, Domiciling, Transferring, or Converting a Delaware LLC to a Florida LLC
Updated: April 18, 2023
Reading Time: 10 Minutes
- Domicile a Delaware Limited Liability Company to Florida,
- Maintain the same EIN and identity for the LLC,
- Enjoy tax benefits provided to Florida residents.
- Limited Liability Companies (LLCs)
Table of Contents
- What is a Conversion or Domestication?
- Does Delaware Allow LLCs to Move Out of State?
- Is My Delaware Entity Dissolved?
- Do I Need To Get a New EIN if I Domesticate My Company to Florida?
- How Does FL Patel Law PLLC Convert My Delaware LLC to a Florida LLC?
- How Long Does It Take To Complete a Domestication or Conversion to the State of Florida?
- What Are the Costs Involved in Domesticating My Delaware LLC to the State of Florida?
- What Are Some of the Risks Associated With a Conversion Gone Wrong?
- Increase Your Chances of a Successful Conversion
- What Are the Benefits of Converting My Delaware LLC to a Florida LLC?
- What Are the Tax Implications of Converting My Delaware LLC to a Florida LLC?
- Should I Work With Attorney Patel to Convert My Delaware LLC to a Florida LLC?
Florida has a lot to offer Delaware business owners that are relocating their companies to our state. For example, Florida has no income tax at the state level and our government’s policies are consistently pro-business as well. Those interested can make this move happen through a corporate transaction called statutory conversion.
Although converting a Delaware LLC to a Florida LLC presents a series of significant challenges, FL Patel Law PLLC’s guidance can make all the difference by helping to ensure an easy, seamless transition. Our firm has successfully reorganized over 140 businesses into Florida entities, granting us the necessary experience and insight to prepare them for prosperity in the Sunshine State.
In this article, we’ll review our firm’s process for converting a Delaware LLC to a Florida LLC. We’ll also take a moment to go over some potential dangers that can come about from improperly executing a conversion, as well as how our attorney can help you avoid those risks and protect your business.
Failure to strictly adhere to the statutory requirements mandated by both Florida and Delaware can result in a world of hurt for your business. In fact, some mistakes could even dissolve your company, which can come with undesirable tax implications. When entrusting their conversion to our firm, our clients benefit from our assistance with navigating these requirements and other compliance matters, as well as our dedication to minimizing delays and protecting their business’s continuity.
What is a Conversion or a Domestication?To top
Statutory conversion is a method available under Florida law for changing a Delaware LLC to a Florida LLC.
This process is known as “domestication,” “conversion,” or “transfer” when the entity is relocating to a new state. These terms are often used interchangeably.
By undergoing statutory conversion, a company can change its formation state without dissolving the original entity and starting over from scratch in a new jurisdiction. It’s often advantageous because it can keep disruptions at a minimum and preserve important relationships, contracts, and licenses. Converting a Delaware LLC to a Florida LLC also enables it to maintain the same rights, assets, privileges, and liabilities that it did in its original state.
Delaware LLCs that use domestication or conversion to become Florida LLCs will be regulated by the Florida Revised Limited Liability Company Act instead of the Delaware Limited Liability Company Act, unless the LLC has a foreign qualification that allows it to do business in Delaware. This is something to discuss with our attorney.
Does Delaware Allow Limited Liability Companies (LLCs) to Move Out of State?To top
Yes. As of the writing of this article, Delaware LLCs can transfer to the state of Florida under Section 18-216 of the Delaware Limited Liability Company Act. Delaware corporations have a similar path to becoming Florida entities available them, which you can read about by clicking through this link.
Delaware Limited Liability Act § 18-216 Approval of conversion of a limited liability company.
(a) Upon compliance with this section, a domestic limited liability company may convert to a corporation, a statutory trust, a business trust, an association, a real estate investment trust, a common-law trust or any other incorporated or unincorporated business or entity, including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership) or a foreign limited liability company.
Is My Delaware Entity Dissolved?To top
No, conversion will not dissolve your business. If the process is successful, then the company’s status in Delaware’s business database will be “converted out” instead of “active” or “inactive.” You should avoid any instructions that involve dissolving your entity as a part of converting it from a Delaware LLC to a Florida LLC. Some online sources, especially those not associated with attorneys, incorrectly claim that dissolving a business is a part of the conversion process. For most businesses, our firm typically recommends only pursuing dissolution when it’s time to shut down operations for good.
Do I Need To Get a New EIN if I Domesticate My Company to Florida?To top
The IRS issues an EIN to make it easier to identify a given business. They provide that a company that undergoes a statutory conversion without making any other changes can keep using the same EIN, as it’s the same entity that existed before. However, this will ultimately depend on your business’s unique situation.
Maintaining your company’s continuity when converting it from a Delaware LLC to a Florida LLC is essential if you want to continue using the same EIN. Consider hiring an attorney to oversee your business’s domestication, as their experience can help you avoid mistakes and missteps that could cost the LLC its corporate identity.
How Does FL Patel Law PLLC Convert My Delaware LLC to a Florida LLC?To top
No matter what state the LLC is coming from, there is a specific sequence of processes that all conversions must follow. Below, we’ll outline just a few of the different ways that we can assist clients looking to domesticate a Delaware LLC to Florida. Keep in mind that this is general advice and is not meant for your exact situation. For guidance tailored to your business, please schedule a consultation with our attorney.
We kick off the conversion process with an initial assessment of the client’s business to confirm that conversion is the best available method for relocating to Florida. By reviewing their operations and goals for domesticating their business, we can spot potential problems before they pose a threat to the company. It also gives us the information that we need to build a personalized strategy for transitioning the company from a Delaware LLC to a Florida LLC.
We provide comprehensive support throughout the conversion process that includes:
- Drafting the Plan of Conversion and other required documents
- Ensuring compliance with the laws and other legal requirements in both states
- Filing the necessary documents with Delaware and Florida state agencies
- Updating the LLC’s operating agreement and other corporate documents to reflect its conversion from a Delaware LLC to a Florida LLC
- A comprehensive consultation to address final concerns and questions
How Long Does It Take To Complete a Domestication or Conversion to the State of Florida?To top
Using the insight that our firm has gained from managing over 140 domestications and conversions for our clients, we have developed a streamlined methodology for relocating LLCs to Florida that emphasizes efficiency while preserving continuity. The entire process takes about two or three months to complete, and with expedited filings and an experienced attorney at the helm, we can assure you that this is the fastest possible time frame.
In most cases, the respective state agencies in both Florida and Delaware will need several weeks of processing time. This means that mistakes can take weeks or even months to correct, which can delay the move. The likelihood of such mistakes can be significantly reduced by hiring an established Florida Law firm, such as our own, to help convert your Delaware LLC to a Florida LLC.
What Are the Costs Involved in Domesticating My Delaware LLC to the State of Florida?To top
Delaware’s filing fee for converting a Delaware LLC to a Florida LLC is $250.00, while Florida’s conversion fee is $155.00. This amounts to a total of $405.00, although there will of course be other associated costs when domesticating a company. Mistakes will only make this project more expensive. Even if it isn’t accidentally dissolved or thrown out of compliance, those filing fees for corrected documents add up fast.
FL Patel Law PLLC’s domestication projects are offered on a flat-fee basis. We determine the cost for each client based on their company’s unique structure and circumstances. Schedule an initial consultation with Attorney Patel to review your project and get a quote for your conversion. We handle conversions for clients in both states with a focus towards efficiency and minimizing potential interruptions.
What Are Some of the Risks Associated With a Conversion Gone Wrong?To top
Converting a Delaware LLC to a Florida LLC is a complicated process that should be undertaken with great caution and attention to detail, as it calls for a deep understanding of the laws in both states. However, a law firm’s assistance can be highly beneficial when it comes to avoiding costly mistakes and threats to your business’s continuity.
The risks of converting your business on your own without the assistance of a trusted law firm include, but are by no means limited to:
- Noncompliance with state laws
- Revocation of the LLC’s operating authority
- Damaged credit standing
- Damaged relationships with clients and vendors
- Disrupted contracts
- Loss of business continuity
- Loss of limited liability protection
- Tax implications and increased tax liabilities
- Legal disputes
- Dissolution or liquidation
- Missed opportunities
- Expensive fines
- Painful delays
- Taxes on Appreciated Assets – Depending on the LLC’s tax structure, its members could end up paying income taxes on appreciated assets if they make any errors during the conversion process. For instance, if an asset that was worth $100,000 at the company’s founding is now worth $1 million, and the company is mistakenly dissolved or liquidated, then the members could be taxed on the gained value.
- Title of Asset Issues – Another benefit of converting a Delaware LLC to a Florida LLC is that asset titles will automatically transfer over to the domesticated entity – that is, assuming the conversion process was handled correctly. This can make it difficult to prove ownership of those assets, which can cause major headaches when trying to sell a company, among other problems.
These are only a few of the problems that can result from errors or omissions in the conversion process. Be sure to do all that you can to ensure a successful transition.
With over 140 business conversions and domestications to our credit, our firm’s proven track record means that you can rest easier knowing that your interests are in safe hands when we’re the ones in charge of converting your Delaware LLC to a Florida LLC.
Increase Your Chances of a Successful ConversionTo top
Don’t gamble with your Delaware LLC’s future by attempting a conversion without professional guidance. Working with our firm is the best way to protect your business’s interests – and your own – when converting a Delaware LLC to a Florida LLC.
What Are the Benefits of Converting My Delaware LLC to Florida LLC?To top
1. Converting an LLC to Florida often eliminates filing requirements in the State of Delaware. If the company stops doing business in Delaware, it will no longer have an economic nexus in that jurisdiction.
2. Coming to the Sunshine State also opens up networking possibilities with Florida professional accountants, attorneys, and other professional service providers that know and live Florida LLC and business law.
3. Domesticating a company to Florida is often easier than dissolving and restarting it from scratch because it changes a Delaware LLC to a Florida LLC without interrupting its ability to do business or threatening its continuity.
4. The newly drafted Florida Articles of Organization will immediately replace the initial Delaware founding documents. All LLC powers remain with the converted entity, along with rights, benefits, exemptions, privileges, and principles.
5. The LLC’s members will keep their original membership interests. The converted LLC will also have the same real estate and property rights that it had back in Delaware. However, the Delaware LLC’s liabilities will also remain unaffected by the Florida conversion, as will any pending lawsuits. Pending legal procedures or actions will be substituted with the name of the Florida LLC.
6. There is no requirement to reside in Florida after converting a Delaware LLC to a Florida LLC.
7. By relocating operations to Florida, you could save on state income taxes if your converted LLC no longer has a nexus in Delaware. Check with your tax professional for more guidance on taxes, as this will be unique to each business.
8. Domestication allows businesses to keep using the same EIN. It will still be the same entity as before after converting from a Delaware LLC to a Florida LLC. All that changes is the company’s domicile – its federal tax reporting duties will not be affected.
9. The LLC will also still have the same bank accounts, the same taxpayer ID, the same operations, and the same contracts after converting from a Delaware LLC to a Florida LLC. Careful planning should be undertaken before initiating domestication or conversion, as the consequences for mistakes can be severe.
What Are the Tax Implications of Converting My Delaware LLC to a Florida LLC?To top
When converting a Delaware LLC to a Florida LLC, there’s a strong likelihood that there will be tax implications that result from the move. Make sure to discuss this with your tax professional before converting to ensure proper compliance with state governments, the IRS, and other regulatory bodies. The exact implications will change from business to business, but some generalities to discuss include:
- State Income Tax: Florida, unlike Delaware, has no state income tax. While the company’s tax responsibilities at the federal level will remain the same, it might be able to save on state income taxes after converting from a Delaware LLC to a Florida LLC.
- Franchise Tax: Delaware has a franchise tax for applicable businesses, while Florida does not. However, any outstanding franchise taxes must be paid before it will be allowed to convert. After converting from a Delaware LLC to a Florida LLC, the company will need to close its account with the Delaware Franchise Tax Department and file any necessary final returns.
- Nexus: Converting a Delaware LLC to a Florida LLC could remove its nexus (taxable connection) in that state if it ceases to do business or maintain a presence there. However, not every business that converts into a Florida entity will shed its original nexus. In that case, it will need to follow the laws in both states.
Should I Work With Attorney Patel to Convert My Delaware LLC to a Florida LLC?To top
Our clients will continue to enjoy the benefits of working with Attorney Patel even after converting their Delaware LLC to a Florida LLC. This support includes a post-conversion checklist and instructions that will help ease them into their new roles and duties as Florida business owners.
At the end of the project, our clients also receive a consultation to address any remaining questions that they might have about owning an LLC in Florida. Remember that, as a corporate law firm, we offer a suite of services to support our clients that could prove useful, if not necessary, to running a business in Florida.
The potential dangers involved in converting your own Delaware LLC to a Florida LLC should not be underestimated. By trusting your conversion to our Florida corporate law attorney, you’ll have more time and energy to focus on running your business while we tackle the legal complexities of its relocation. Schedule with us now to get started.
Are you ready to move your Delaware LLC down the New England coastline to tropical Florida? Don’t risk breaking your business’s stride — get assistance from an experienced business conversion attorney by calling (727) 279-5037, or if you are ready to convert, check out our service page.