Limited liability companies (“LLC”) are commonly used by businesses of all sizes and are perhaps the most popular entity type formed in Florida.
This is likely due to the extensive list of benefits that accompany them.
An Overview of Florida Limited Liability Companies
Florida limited liability companies are governed by Chapter 605 of the Florida Revised Limited Liability Company Act and are controlled by managers who carry on the day-to-day affairs of the business while the ownership interest in the entity is vested in its members.
An LLC’s members hold a membership interest in the company (as opposed to having an ownership interest in the LLC’s property) and operate similarly to shareholders of a corporation. LLCs may be managed by third parties, non-member managers, or by its members.
Most small business LLCs are “member-managed” entities.
While LLCs have possible drawbacks such as the potential for self-employment taxes, exceptions to creditor liability protection, or perhaps, complications related to transferring ownership, the list of benefits of an LLC typically outweighs any deterrent.
One of the greatest benefits of an LLC for a small business owner in Florida is the credibility it adds to the operation providing clients, investors and financial institutions with the security of knowing that the company is legitimate.
This article explores a cursory list of other benefits of an LLC in Florida:
(1) Simplicity and Cost Effectiveness
In Florida, the formation of an LLC is simpler and cheaper than that of a corporation making it a great option for small business owners or sole proprietors.
According to Florida law, an LLC simply requires a few steps starting with selecting an appropriate name, drafting and filing Articles of Organization with the state of Florida and assigning a registered agent.
Additionally, each year an annual report is due along with the accompanying filing cost and can be easily submitted and paid online.
For more in-depth information on these requirements, visit our two prior articles entitled Forming a Florida Limited Liability Company: a checklist and How to Form an LLC in Florida.
In addition to its simple formation process, creating an LLC is a relatively cost-effective option for business owners.
Creating a new LLC requires the payment of both the filing fee and the registered agent fee, which totals $125.00. The annual report fee is $138.75.
(2) Member Liability Protection
One of the most common reasons clients elect to form an LLC is to benefit from the separation of their personal assets from that of their business.
And while Florida has extensive homestead laws that would otherwise protect the average person’s largest personal asset, creating an LLC helps to protect an owner’s personal property, bank accounts etc. in the event the business incurs legal liability.
Essentially, the limited liability of this entity ensures that the company’s members are not responsible for the company’s debts or liabilities and their personal assets are protected from the liabilities of their business.
Although, there are exceptions to this protection such as when a member signs loan documents as a guarantee for business purposes, in certain situations involving fraud or negligence, or in specific circumstances when the LLC is owned by a sole member.
(3) Ownership & Managerial Flexibility
Distinct from other forms of entities, Florida LLCs do not have restrictions or requirements on the number or type of members.
It also allows for the relatively simple removal or inclusion of new members as a result of death of an LLC member, when members voluntarily exit the company or for any other allowable reason.
Similarly, there are no limitations to the manner in which an LLC may be managed, to the set-up of the company’s board of directors or officers.
This flexibility allows for the distinction between manager-managed and member-managed LLCs.
The Florida Statute allows for members to select the manner in which the company operates, which member(s) may be involved in the day-to-day management, or whether management is done by a third-party, non-member.
(4) Profit and Loss Distribution
Another benefit of an LLC in Florida is that members may decide how to divide profits and losses.
This is different to other types of entities such as a general partnership which requires equal division of the business interest among its partners.
Typically, this division is delineated in the LLC’s Operating Agreement and while having this document is not mandatory in the state of Florida, it is highly useful and recommended for all LLCs.
If a company does not have an operating agreement, the division of membership interest is divided in accordance with the agreed value of the contributions made by each member, so long as those contributions have been received by the LLC.
(5) Taxation Flexibility
It is commonly quoted that an LLC is a pass-through entity for IRS taxation purposes unless it elects to be taxed differently.
But what exactly does this mean?
Essentially, this means that the income or losses experienced by the entity pass through to its members and they are reported to the IRS on personal tax returns rather than the entity having filed its own tax returns.
The appeal is that, unlike certain types of corporations, members of LLCs do not experience double taxation – first by the corporation and then again personally. Despite this “pass-through” status, members may elect to be taxed in other ways depending on their needs and cost-aversion.
The main ways in which an LLC may be taxed are:
(a) as a sole proprietorship in which the sole member is taxed individually and must also pay self-employment taxes,
(b) as a general partnership in which each member’s proportionate ownership passes through to them and they pay taxes on their respective amount,
(c) as an S-corporation in which the member(s) pay themselves a salary while the remaining earnings are passed-through to them directly and, finally,
(d) as a C-corporation in which the members and the entity are taxed separately, resulting in a form of double taxation.
In Florida, the benefits of an LLC do not fully extend to single-member LLCs (meaning an LLC with only one member).
According to the amended Florida LLC statute, single-member LLCs are not afforded comprehensive protection since judgment creditors of the sole owner of a single-member LLC may attach to that member’s interest in the LLC thereby forcing its sale.
Consequently, having a multi-member LLC provides the most amount of protection available to LLC members.
Benefits of an LLC in Florida Conclusions
In conclusion, there are several benefits of an LLC in Florida such as liability protection, tax advantages and flexibility that are invaluable to having a prosperous business – big or small.
It is, however, essential to consult with legal and financial professionals to determine if having an LLC is the best option for someone dealing with your specific circumstances.
So, whether you’re starting a new venture or considering restructuring your existing business, the benefits offered by Florida LLCs are worth exploring.
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