Relocating your business to another state is a significant decision that can have lasting impacts on your operations. For business owners, transitioning to a new state like Florida offers a range of benefits, from reduced or no state income taxes to potentially lower costs for services and merchandise. However, the process of moving a business to Florida, while straightforward, involves a key legal decision: whether to convert your business entity or domesticate it. Understanding the difference between these two options and how to navigate the conversion process in Florida can help you make an informed decision that best suits your business needs.
Why consider Relocation
The decision to relocate your business is often driven by both financial and operational factors. In Florida, some of the most compelling reasons to make the move include:
No State Income Tax: Florida is one of the few states with no state income tax, which can significantly reduce your tax burden (though you generally must also file taxes in any state where you have nexus).
Lower Costs: Florida offers competitive rates for services, business supplies, and filing fees, potentially saving you money in the long term.
Maintain Your Business History: One of the major advantages of relocating your business to Florida through entity conversion is that you can maintain aspects of your business, including your business’s:
Original Tax ID (EIN number) you obtained from the IRS.
Credit history and rating.
Existing bank accounts.
Property rights and certain records.
This stream of continuity can be crucial for your company's financial and organizational success.
Conversion vs. Domestication: Understanding the Differences
The terms entity conversion and domestication are sometimes used interchangeably, depending on the state. However, there are key differences that every business owner should understand:
Conversion: In Florida, conversion generally refers to the ability to convert:
A Florida entity (for example, a limited liability company (LLC), corporation, partnership, trust) into either (1) a different Florida entity, or (2) an entity organized under another jurisdiction’s laws, if the jurisdiction allows; or
A foreign entity (out-of-state) into a Florida entity.
Conversion allows you to relocate your business to Florida and change its entity type. For example, an LLC from another state could convert into a Florida corporation (for example, an S Corporation), providing potential tax benefits. The company is then treated as if it were originally formed in Florida, streamlining the legal and financial processes.
Domestication: Domestication, on the other hand, generally refers to the process of moving a domestic or international company into Florida. This is a more complex procedure, particularly if the entity is transitioning from a foreign country.
The Process in Florida
The good news is that Florida offers a relatively simple and straightforward process for business owners who wish to convert or domesticate their out-of-state business into a Florida entity. The process typically involves some variation of the following steps:
Confirm Eligibility: The laws of both jurisdictions (both Florida and the entity’s current or “home” jurisdiction) must allow conversion or domestication for this process to be viable. While Florida permits the conversion and domestication of out-of-state entities, not all states permit conversion and domestication. Additionally, certain states may not recognize the transition if your business is not in good standing, which could be due to delinquent annual reports or other issues.
Plan of Conversion or Plan of Domestication: To initiate the business conversion or domestication, you will need to prepare either a Plan of Conversion or Plan of Domestication. These are written documents that formally approve the process on your business’s behalf. The plan will detail the effects on the business, how the conversion or domestication will be carried out, and key information such as the name of the converting entity and the manner of converting shares or member interests. Additionally, if provided for under the home jurisdiction’s laws, shareholders or members must vote to approve or consent to the conversion or domestication.
File the Articles of Conversion or Articles of Domestication with the Florida Division of Corporations: Florida requires certain filing fees and forms, which are available on the Florida Division of Corporations' website at www.sunbiz.org. The below table illustrates the required contents for each filing.
ARTICLES OF CONVERSION | ARTICLES OF DOMESTICATION |
Name, jurisdiction, and type of existing out-of-state business | Name of existing out-of-state business |
Name and type of new Florida business entity | Name and jurisdiction of formation of the new entity (and for LLCs, the date) |
Jurisdiction where the out-of-state entity was originally formed | Jurisdiction:
|
Effective date of the conversion | Effective date of domestication (if to be an LLC) |
Statement that the domestication was approved under the home jurisdiction’s law and that the entity has agreed to satisfy any appraisal rights | Statement that the domestication was approved under the home jurisdiction’s law |
Any terms or conditions of the conversion | Articles of incorporation/organization |
Signatures from authorized persons (e.g. shareholders, members, managers) | Effective date of domestication (if to be an LLC) |
Public record (if a FL entity) | Certificate of status |
Statement of qualification (if converting entity is an LLP) |
**Not required, but in either case: Filing of a copy of the articles in the land records office of any county where the entity holds real estate is permissible.
In addition, you will need to include new Florida Articles of Incorporation or Articles of Organization when you file your Articles of Conversion. To file, you must submit the Articles of Conversion packet, including a cover letter and Articles of Incorporation, and pay the required filing fees to the Florida Division of Corporations either by mail or in-person submission.
Dissolve Original Entity: Once you have converted your business into a Florida entity, you must then dissolve your original entity in its home state or jurisdiction, which can be complicated and time-consuming. Also, if you dissolve your entity before conversion or domestication, this can cause significant legal issues that may impact your business.
Maintain Continuity: One of the biggest advantages of the conversion process is that it allows your business to continue seamlessly. Your company's membership interests remain the same, any out-of-state property is still held by the company, and outstanding debts remain the responsibility of the business.
Alternatives to Conversion
If your business isn’t eligible for conversion or if you decide that conversion is not the right path, there are alternative options to consider:
Registering as a Foreign LLC
This involves registering your out-of-state business as a foreign entity in Florida, which may be more complicated and costly than conversion. However, if you prefer to maintain the business in its home state, you may operate as a foreign entity in Florida–the business stays registered in its home state and conducts business in Florida. Foreign entities must:
Designate a Florida registered agent to receive service of process.
Obtain and register a foreign entity name.
File the Application by Foreign Corporation for Authorization to Transact Business in Florida.
Submit a certificate of good standing or existence, issued by your home state.
Comply with your home state’s and Florida’s rules regarding foreign entities.
Dissolution and Reformation
Another option is to dissolve your existing company and create a new one in Florida. While this may seem like a clean slate as you can choose a new business structure, it can be a more expensive and time-consuming process. The process usually involves:
Registering with the Florida Division of Corporations.
Executing new corporate organization documents.
Obtaining necessary licenses and permits.
Following state tax laws.
Mergers
In some cases, a merger with a Florida-based entity may be an option, though it may come with additional legal and financial complexities, such as due diligence, valuation, negotiation, and documentations.
Seeking Legal Assistance
Although the process of entity conversion in Florida is relatively straightforward, it’s always recommended to work with an experienced attorney. Moving a business from out-of-state to Florida is a significant decision, and navigating the legal and regulatory landscape can be complicated. A business attorney can ensure that all the proper forms are completed and filed correctly, preventing delays or complications down the line.
Here at Tarro Law Associates, we have extensive experience helping small businesses through growth and change. Our business law attorneys can guide you through the complexities of relocating your business, ensuring a smooth transition and setting the stage for a prosperous future in Florida. Contact us today for your initial consultation.
We’re ready to help you navigate this important step for your business.
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