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Florida LLC Conversion: Relocating a Business from another state to Florida

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.

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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.

What is a Professional Limited Liability Company?

By: Marcus Leonard

 

What is a PLLC?

Many people are familiar with limited liability companies (“LLC”) including liability protection and other benefits provided by this type of business structure. Slightly different, a professional limited liability company (“PLLC”) is an LLC formed specifically by those who are licensed to provide professional services.

The term “professional service” means any type of personal service to the public which requires someone to obtain a license or other legal authorization to perform such service. Many medical professionals are authorized to form PLLC’s, including chiropractic physicians, dentists, osteopathic physicians, physicians and surgeons, doctors of medicine, doctors of dentistry, and podiatric physicians.

It is important to note that in Florida, a PLLC is only authorized to engage in providing the professional services for which it was organized. Additionally, all members must be licensed to provide the specific professional services offered by the PLLC and remain subject to the rules and regulations of the relevant state professional licensing authorities. For example, a group who wants to form a PLLC for a dental practice is authorized to engage only in dental services and all members must be licensed dentists. Accordingly, while practicing, the dentist will remain subject to the rules and regulations provided by the Florida Board of Dentistry.

 

PLLC’s Protections

A PLLC, like a standard LLC, offers some personal liability protections but does not shield members from all types of liability. The structure of a PLLC will provide members with protection from creditors attempting to collect unpaid debts owed by the PLLC, liability for the malpractice of other PLLC members, and from malpractice suits and other torts connected with the PLLC. Unfortunately, a PLLC will not protect members from liability if they have personally guaranteed a business loan, engaged in professional malpractice, or were negligent or intentionally committed a tort.

 

How Do You Form a PLLC in Florida?

Compared to other business structures, forming a PLLC is often more straightforward which is a major benefit for those who want to begin practicing as soon as possible. As mentioned above, it is important that all professional members of the company have the necessary state licenses and certifications. Members must then contact the relevant state licensing board to find out what approval is required for their profession. Those who wish to form a PLLC must draft and file articles of organization with the Florida Division of Corporations. This will include a statement of specific purpose, such as the practice of dentistry, medicine, or another professional service.

 

Different from a Professional Corporation

A PLLC is not to be confused with a professional corporation (“PC”).  A PLLC, like other LLCs, is comprised of members. On the other hand, a PC is comprised of shareholders. This distinction is important because PLLC ownership consists of membership interests in the business, while PC ownership is based on shares of stock.

In Florida, authorized licensed professionals can form both PLLCs and PCs. Although a PC has its appeal and provides liability protection, it requires more paperwork and, in some cases, does not benefit from the tax advantages of a PLLC.

 

Conclusion

It is highly recommended to speak with someone who specializes in healthcare when deciding on the best legal entity for your practice. The team at Jones Health Law is eager to assist authorized licensed professionals seeking instruction or guidance with the formation of a Florida PLLC or other business structure.

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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.

Closing your Medical Practice? Don’t forget to Wind Up!

You’ve decided that now is the time to close your healthcare entity (i.e. Medical Practice) for any number of reasons. However, you can’t simply close the doors and just walk away. There are a few steps that you need to take in order to comply with Federal and Florida law. One of the requirements is that you “wind up” your limited liability company (“LLC”).

After you’ve dissolved the company the company continues only for the purpose of winding up. During this process the LLC is required to discharge or make provisions for the company’s debts, obligations and other liabilities, as well as, settling and closing the company’s activities and affairs, including distribution of the assets of the LLC.

You may also have to prosecute and defend certain legal actions and proceedings even after dissolution, whether civil, criminal or administrative. The company would have to settle any disputes by mediation or arbitration and transfer title to the company’s real estate and other property.

If the dissolved company has no members (i.e. death of sole shareholder), the legal representative of the last person to have been a member may wind up the activities and affairs of the company. If the legal representative declines to do so, a person may be appointed to do so by the consent of the transferees owning a majority of the rights to receive distributions as transferees at the time the consent is to be effective. Alternatively, a circuit court judge may order judicial supervision of the winding up of a dissolved LLC, including the appointment of one or more people to wind up the company’s activities and affairs. The person appointed by the court may also be designated trustees for or receivers of the company with the authority to take charge of the LLC’s property and to do all other acts that might be done by the LLC which may be necessary for the final settlement of the unfinished activities and affairs of the company. The powers of the trustees or receivers may be continued as long as the court deems necessary.

The dissolved company that has completed winding up may submit a statement of termination to the Department of Business Regulations including: (a) the name of the LLC; (b) the date of filing of its Articles of Organization; (c) the date of filing of its articles of dissolution; (d) the LLC has completed winding up its activities and affairs and has determined that it will file a statement of termination; and (e) other information as determined by the authorized representative.

Finally, the trustees may distribute property of the limited liability company discovered after dissolution, convey real estate and other property and take such other action as may be necessary on behalf of and in the name of the dissolved LLC.

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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.

Dissociation of a Partner in a Healthcare Entity or Medical Practice

You’ve found yourself in a very common situation where one or more partners in your healthcare business (i.e. medical practice) wants to resign or dissociate from the entity. There could be any number of reasons that would motivate a person to do so. You may handle the personal fallout from this situation in any manner that you choose. However, there are still certain legal requirements that you must adhere to when a partner chooses to dissociate from a limited liability company.

Events Causing Dissociation

This is not an exhaustive list but a person is dissociated as a member if any of the following occur:

  • The company received notice of the person’s express will to withdraw as a member
  • An event stated in the operating agreement as causing the person’s dissociation occurs.
  • Person’s entire interest is transferred in a foreclosure sale.
  • The member is expelled pursuant to the operating agreement, by unanimous consent of the other members, or by judicial order.
  • Death or becomes incapable of performing their duties.
  • Becomes bankrupt, acquiesces in the appointment of a trustee, receiver or liquidator or the person or of substantially all of their property.
  • The company dissolves and completes winding up.

 

Statement of Dissociation

In order to dissociate from a limited liability company (“LLC”) you may file a statement of dissociation with the Florida Department of State’s Division of Corporations. (“Department) Your statement should: (a) list the name of the LLC; (b) name and signature of the dissociating member; (c) date the member withdrew or will withdraw; and (d) a statement that the company has been notified of the dissociation in writing. If you are the manager in a manager-managed LLC you may file a statement of resignation in the same manner.

 

Effect of Dissociation

If a person is dissociated as a member they lose their right to participate as a member in the management and conduct of the company’s activities and affairs. If the LLC is member-managed, the person’s duties and obligations as a member ends with regard to matters arising and events occurring after the person’s dissociation. A person’s dissociation as a member does not, of itself, discharge the person from a debt, obligation, or other liability to the company or the other members which the person incurred while a member.

 

Liability of Members and Managers

If you are dissociating from an LLC you should understand that any debt, obligation or other liability of the LLC is solely the debt, obligation or liability of the company. The dissociating member or manager is not personally liable, directly or indirectly for a debt, obligation or other liability of the company solely by reason of being or acting as a manager or member. This is true even if the company is dissolved.

A manager in a manager-managed LLC or a member in a member-managed LLC is not personally liable for monetary damages to the LLC, its members or any other person for any statement, vote, decision, or failure to act regarding management or policy decisions by either the manager or member unless: (a) the manager or member breached or failed to perform their duties: and (b) that breach or failure constitutes any of the following:

  1. A violation of criminal law unless the manager or member had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe that their conduct was unlawful.
  2. A transaction that caused the manager or member to receive an improper personal benefit, directly or indirectly.
  3. An improper distribution.
  4. The LLC procures a judgment in its favor on the basis that their was a conscious disregard for the best interest of the LLC, or willful misconduct.
  5. Someone other than a member or the LLC brings a successful cause of action based on recklessness or an act or omission that was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

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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.

Which Business Structure is Best for my Medical Practice?

Which Business Structure is Best for my Medical Practice?

Over the years many providers have come to my office expressing an interest in owning a medical practice, healthcare facility, or healthcare business. During these meetings, it is important to obtain pertinent background information about the healthcare entity followed by a discussion about some of the regulatory and licensing issues that may arise. Equally important is determining how the healthcare entity should be structured for asset protection and tax purposes. A corporate healthcare attorney like myself can determine whether it is best for you to create a corporation, LLC, or an LLP. Admittedly, some of the more complex tax issues should be discussed with an attorney that specializes in tax law. Here is an overview of some of the basic differences between the different business entities.

Sole Proprietorship

An individual who does not create an entity.

  • No taxes are imposed on the entity. Instead, the individual owner reports the income and pays the income taxes.

Professional Corporation (a/k/a “P.A.”):

A corporation in which one or more shareholders must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.A. can be taxed either as an S Corporation or as a C Corporation.

 

Corporation:

A corporation whose owner is not limited solely to licensed professionals. The corporation can be taxed either as an S Corporation or as a C Corporation.

  • C Corporation: Unless it elects otherwise, a corporation must report its own income and pay its own income taxes, under Subchapter C of the Internal Revenue Code.
    • A C Corporation is also subject to Florida’s state corporate income tax at a rate of 5.5%. Any distributions of its earnings to its shareholders requires the shareholders to recognize dividend income, resulting in a second layer or taxation.
    • Many professional C Corporations attempt to avoid distributing dividends by paying all income as compensation (because although it is still taxable to the recipient employee/shareholder, the C corporation gets a deduction for such compensation, resulting in one-layer of taxation).
    • If a C corporation pays excessive compensation, the IRS may try to treat some of the compensation as a dividend distribution and deny the deduction to the corporation with respect to such imputed dividend.

LLLP

A limited liability limited partnership comprised of at least one general partner and at least one limited partner, which is created by filing a Certificate of Limited Partnership and indicated LLLP status in such certificate. The status provides a general liability shield for all of the general partners.

S Corporation

No tax generally imposed on a corporation that elects to be treated as an “S Corporation” under Subchapter S of the Code. Rather, the tax consequences flow-through to the shareholder(s).

  • Each shareholder reports his or her pro rata share of the tax consequences based on his or her ownership in the S corporation and pays the income tax at his or her effective personal income tax rate.
  • Any distribution to the shareholder(s) is not treated as a dividend, but rather first is a return of basis and then excess is capital gain: provided, however, if the S corporation was formerly a C corporation within the past 10 years and had earnings and profits, then a portion of the distributions of the S corporation could be subject to tax as a dividend (Rather than a return of basis).
  • Shareholder distributions:
    • must be made in the ratio or ownership;
    • can be abused to “save” payroll taxes applicable to compensation; and
    • lack the asset protection potential of compensation payable to the head of a family under Florida law.
    • A P.A. generally should elect to be taxed as an S corporation, preferably from inception.
    • If a corporation has already been taxed as a C corporation, then conversion to S Corporation status must be carefully considered to ensure that the “built-in gains” tax on unrealized receivables can be handled through proper accrual and payment of accounts payable and compensation.

Professional Limited Liability Company (a/k/a “P.L.”)

A limited liability company in which one or more members must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.L. can be taxed either as a disregarded entity (if there is only one member), as a partnership (if there is more than one member), or an S Corporation (whether it has one or more members.)

LLC

A limited liability company whose ownership is not limited solely to licensed professionals. The LLC can be taxed either as a disregarded entity, a partnership or an S corporation.

General Partnership

An entity that is comprised of two or more general partners. No written document is necessary to create a general partnership.

LLP

A limited liability partnership is comprised of two or more general partners, which registers with the state by filing a Statement of Qualification. The registration provides a general liability shield for all of the partners.

Limited Partnership

An entity comprised of at least one general partner and at least one limited partner, which is created upon the filing of a Certificate of Limited Partnership with the state.

There are many factors to consider when deciding how to structure your medical practice or healthcare entity. You should obtain an in-depth analysis of the various business structures so that you can choose the best one suited for your needs. While it is not impossible to change from one business entity type to another, it is always best to choose the best structure from the very beginning. A capable attorney at Jones Health Law, P.A. would be happy to guide you through this process.

***This blog post does not constitute legal advice and is only intended for educational purposes. You should consult a licensed attorney in the State of Florida that specializes in healthcare law.***