For many reasons, it is not uncommon for business owners in Florida to alter the structure of their companies as needed. As revenues increase and your business expands, there will be new challenges and opportunities that simply cannot be addressed with the current structure. To help you prepare for a possible conversion, this blog will provide a general overview of converting differing businesses in Florida.
Sole Proprietorship > LLC
It is fairly common for first-time entrepreneurs to start their business as a sole proprietorship due to its simplicity in setting up and operating. In many cases, though, the hope is that a business owner’s sole proprietorship grows enough so that another business structure begins to make more sense. A popular option for business owners in Florida is to start an LLC for tax benefits, limited personal financial liability for the business’s debts and judgments, and the ability to add other owners (referred to as members in the context of LLCs).
Partnership > LLC
In Florida, the law provides for what is called “statutory conversion” when another formalized entity (like a business partnership) is converted into an LLC. This is simply the official process by which your partnership’s assets and debts are vested in the new entity (in this case, the LLC). You will need to come up with a conversion plan that needs to be approved by your partners, after which you will file the articles of conversion.
LLC > Corporation
As with many other business conversions, you must prepare a conversion plan when you wish to convert your LLC to a corporation. An added wrinkle is that you must notify the other members of your LLC in advance that you are planning to discuss a plan of conversion at a meeting. After a majority of members approve the conversion and conversion plan, then you must file articles of incorporation and send it to the state Division of Corporations.
Corporation > LLC
When converting a corporation to an LLC, you must gain approval of all shareholders who have voting privileges. Typically, a simple majority in each class of shareholders (preferred and common) is required to move forward with a conversion. You must draft a conversion plan which must, among other things, specify how shareholders will convert their ownership into the newly formed LLC. Keep in mind that converting a corporation into an LLC might result in a significant amount of taxes.
Just as you prepared for months or years to launch your business, you need to carefully weigh the pros and cons of changing the structure of your business. For instance, can you accomplish your intended goals (like reducing your personal liability or taxable income) within your current structure? The best way to find out is to consult with an experienced Florida business attorney like Tania Bartolini. Call the firm today at 954-368-4050 to discuss your options.