Converting an LLC to a Corporation or S Corporation in Florida
If you are planning on converting an LLC to a corporation in Florida, here's what you need to know.
The details of how to convert your Florida limited liability company (LLC) to a Florida corporation will vary depending on your specific situation. However, here is some general guidance on the process.
Florida’s Conversion Statute
In Florida, you can use a relatively new, simplified procedure that allows you to convert your business from an LLC to a corporation largely by filing a few basic forms with the Secretary of State. This procedure, technically known as “statutory conversion,” will automatically transfer your LLC’s assets and liabilities to the new corporation. Unlike other methods of conversion, only one business entity is involved, and you do not need to separately form a corporation before the conversion can occur. There is also no need to dissolve your LLC; on the contrary, under Florida’s conversion statute, the one business entity involved in the conversion, which is originally an LLC, is simply considered by default to continue its existence in the form of a corporation. Key elements of the conversion procedure are laid out in sections 607.1115, 608.4401, 608.4402, 608.4403, and 608.4404 of the Florida Statutes (Fla. Stat.).
To convert your Florida LLC to a Florida corporation, you need to:
- prepare a plan of conversion that includes, or has attached to it, articles of incorporation for the new corporation
- get the LLC’s members to approve the plan of conversion; and
- file a certificate of conversion and articles of incorporation with the Department of State
The plan of conversion contains key information about the conversion; at a minimum, it must provide:
- the name of your LLC
- the name of the new corporation; and
- “the terms and conditions of the conversion,” including the basis on which LLC membership interests will be converted into shares of corporation stock.
The articles of incorporation that must be included with the plan of conversion can be relatively simple. At a minimum, they shouldl include:
- the name of the corporation including appropriate suffix (e.g., “Inc.”)
- the corporation’s principal place of business and mailing address
- the number of shares of stock the corporation is authorized to issue
- the name, Florida street address, and signature of the corporation’s registered agent; and
- the name, address, and signature of the incorporator.
The articles also must be signed by an authorized individual. The Department of State has available for download a document package for converting an LLC (or other type of business) to a corporation; the package contains blank templates of a cover letter, certificate of conversion, and articles of incorporation, along with limited instructions. Keep in mind that, depending on your level of expertise, it is probably advisable to seek the assistance of an attorney in preparing your plan of conversion and articles of incorporation.
Florida’s conversion statute requires that your LLC approve the plan of conversion before you file the certificate of conversion with the Department of State. All LLC members must be notified in advance of the date of any meeting where the plan of conversion will be submitted for approval. By default, the statute requires approval in writing by a simple majority of LLC managers who are LLC members. However, the statute also presents an array of possible alternative voting requirements in cases where no manager is a member. For more details, check Fla. Stat. 608.4402. You may well need to review your articles of organization or operating agreement in order to determine the specific voting requirements for your LLC.
The certificate of conversion provides basic information about your LLC and proposed new corporation, such as:
- the name of your LLC
- the current legal form of your business (limited liability company)
- the state where your LLC was originally formed
- the date on which your LLC was originally formed
- the name of your new corporation
- the effective date for the conversion
- a statement that the conversion is permitted under Fla. Stat. 607.1115; and
- the signature of an authorized LLC member.
Note that while the certificate of conversion, which is part of the document package mentioned above, may appear straightforward, converting your particular business may involve unexpected complications; in its instructions for completing the certificate, the Department of State prudently recommends that you seek the assistance of an attorney.
The total minimum filing fee for this process should be $105, which includes $35 to file the certificate of conversion and $70 to file the articles of incorporation. Fees will be higher if, for example, you want certified copies.
Florida’s conversion statute states not only that all of your LLC’s property, as well as liabilities and obligations, are automatically transferred to the new corporation, but also that the rights of creditors and liens against the LLC continue unimpaired against the new corporation, and all legal claims and actions against the LLC may continue against the corporation “as if the conversion did not occur.” For more information, check Fla. Stat. 608.4404.
The foregoing information explains the basic steps for converting from LLC to C Corporation. If you want to convert to an S Corporation, you will also need to file IRS Form 2553.
Apart from the foregoing steps, you will also need to take care of all the tasks normally associated with creating and maintaining a new corporation, such as:
- drafting corporate bylaws
- electing corporate officers and appointing corporate directors
- holding an initial board meeting
- issuing stock certificates
- using the official corporation name on your business documents; and
- filing the required annual report with the state.
It’s important that you follow all of these required formalities in order to ensure that your business continues to have limited liability and can take advantage of various potential tax benefits. For a more complete discussion of the steps involved in forming a corporation, consult Incorporate Your Business: A Legal Guide to Forming a Corporation in Your State, by Anthony Mancuso (Nolo).
One other key step in the conversion process is to make sure that no business contracts or agreements, such as bank documents, leases, licenses, and insurance, will be nullified by your business’s entity change.
The IRS makes clear in a 2004 bulletin that, generally speaking, it will tax a statutory conversion as though the LLC members formally transferred all LLC assets and liabilities to the corporation in exchange for stock, and then immediately liquidated the LLC. However, the specific tax consequences for LLC-to-corporation conversions vary from one case to the next. Because the tax consequences can sometimes be significant, you should consult with a tax adviser before undertaking any conversion.
Other Considerations and Information
Our main concern here has been converting the legal form of your business from an LLC to a corporation. However, if you’re seeking to convert your LLC’s tax status from partnership to corporation without changing the LLC’s legal form, you only need to file IRS Form 8832 (to be taxed as a C Corporation) or IRS Form 2553 (to be taxed as an S corporation). (By default, the IRS taxes a multi-member LLC as a partnership and a single-member LLC as a so-called “disregarded entity;” there is no separate IRS tax category for LLCs.) While the IRS forms for changing tax status are fairly straightforward, this procedure—known as “Check-the-Box”—involves special eligibility criteria; you can find those criteria in the instructions included with the forms.
Certain considerations may affect the timing of your conversion. For example, if you are converting to a C Corporation in order to make your business more attractive to outside investors, you will probably need to convert before any investment occurs. Conversely, if outside investors are not at issue, but the specific nature of your LLC’s assets and liabilities will lead to an undesirable tax burden for the current tax year, you may need to at least temporarily delay the conversion.
For additional guidance on converting from an LLC to a corporation, check Corporations and S Corporations vs. LLCs. For information on conversion rules in other states, check Nolo’s 50-State Guide to Converting an LLC to a Corporation.