Transitioning out of state is a major business decision. As a business owner, there are usually numerous difficult decisions to be made with a permanent or long-term move. Not only can relocating your business to a different state be more convenient, but it can be beneficial for numerous reasons.
Benefits of Relocation
Some of the potential benefits include: (1) reduced or no state income taxes and (2) paying less for services or merchandise. Fortunately, in Florida the transition is not difficult. Another major benefit to conversion is that the company is allowed to maintain the original Tax ID. For an established company, maintaining the tax identification number (EIN number) is a major advantage because the company’s credit history can remain intact and any existing bank accounts can also remain active.
Difference between Conversion and Domestication
Florida allows for conversion of a business from another state. The terms ‘conversion’ and ‘domestication’ can be used interchangeably depending on the state you are in but there are a few differences that should be noted. The most notable difference is that conversion allows for a change in entity type. Florida allows for LLCs to change the applicable governing law and convert into a Florida corporation (an S Corp). The company is then treated as though it was originally formed in Florida. This might provide tax benefits for the business owner. Domestication of a company merely allows for the company to relocate. In Florida, the term ‘domestication’ refers to the move of a company formed internationally into the state and is a more complex procedure.
Conversion Process in Florida
Conversion allows the business owner to only pay one set of fees (annual reports, renewal fees, etc). For the conversion to be acceptable, both states must allow conversion (or domestication). Terms and definitions can complicate the process slightly since every state behaves differently. Not all states allow conversion or domestication.
If allowed, the process and legal effects of Florida conversion are straightforward and nearly effortless. The filing fees are $150 and forms can be found on www.sunbiz.org. The company’s membership interests remain the same, any out-of-state property continues to be held by the company, and any debts also remain due by the company. The process of conversion permits the company to continue the day-to-day operations without any significant interruptions. Florida requires a Plan of Conversion which includes proposed Articles of Organization and Operating Agreements. Each member must consent in writing for the Plan of Conversion to be approved. After the plan of conversion is approved, members can file the Articles of Conversion with the Florida Division of Corporations.
Alternatives to Conversion
Alternatively, business owners can register as foreign LLC’s, dissolve the company and form a new company, or go through a merger in their new state if conversion is not allowed. However, these methods can be more costly and don’t have the added benefits previously mentioned.
It is recommended that an attorney assist with the process to ensure the forms are submitted accurately. At Jones Health law, we have experienced attorneys that can provide legal support during the conversion process.
It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice, it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please contact me using the contact information listed above.
All information and references made to laws, rules, regulations, and advisory opinions were accurate based on the law as it existed at this time, but laws are constantly evolving. Please contact me to be sure that the law which will govern your business is current. Thank you.