There are several reasons small businesses should consider restructuring their business’s legal entity. For example, taking the necessary steps to legally change your corporate status can allow owners to achieve greater personal liability protection or, resolve ownership conflicts before they escalate. If you are pondering if a change is necessary, or how it is done properly, give us a call at the office for a consultation. Read on to learn more about when to change your entity structure.
Why Make A Change?
Smart business owners (like you) likely chose your business form at its inception for the purposes of protecting their personal assets, reducing tax liabilities, or to attract investors. However, if your company’s priorities have shifted over the years, and you decide to change your business from one legal entity to another, keep in mind the following tips:
- Florida’s Conversion Statute Controls
Under Florida’s conversion statute, a business entity can be converted from an LLC (Limited Liability Company) into a corporation. This “statutory conversion” has the effect of transferring an LLC’s assets and liabilities to a newly formed corporation. The statute does not require the corporation be formed prior to the conversion, but you and your legal advisor do need to take a few important steps before you file the documents with the state. Additionally, the old LLC does not need to be dissolved.
Even though the Division of Corporations makes some of the forms available online, an entity conversion is NOT a do-it-yourself project. You have to comply with several different sets of rules to avoid running afoul of any federal or Florida securities laws. By utilizing a business planning attorney, you can ensure you stay in compliance with the statute. In addition, an attorney can help you precisely follow the steps to accomplish the task.
- Know the Tax Implications Involved
You probably should call your corporate accountant for this step, since the tax implications involved in the conversion of certain business entities will vary on a case-by-case basis. The tax benefits (or consequences) may also vary depending on the time of the year that you make the change, and whether your company’s fiscal year is also the calendar year or something different. Depending on the business entity you form, paperwork might have to be submitted to the IRS to obtain certain corporate elections. Remember, those elections have deadlines, so don’t overlook this step!
- Understand the Legal Implications Involved
A key reason business owners change their entity structure is to keep their personal assets as far away from the company as possible, in the event of a lawsuit. Make sure you thoroughly understand the legal implications involved with changing your business’s entity structure to ensure your personal asset protection plan doesn’t conflict with your business entity.