What is a Florida Limited Liability Company?
What are the advantages of a Florida LLC?
What are the characteristics of a Florida LLC?
What are the Articles of Organization?
What name can be used for my LLC?
What are Members?
What is a Membership Interest?
How is an LLC Managed?
Who are the Managers?
What is an Operating Agreement?
What are Minutes and Resolutions?
What are the formalities for a Florida LLC?
What is “Piercing the Veil”?
How are LLC’s taxed?
What is an S Corporation?
What is a Florida Limited Liability Company?
A Florida Limited Liability Company (LLC) is a legal entity created and governed under the Florida Limited Liability Company Act (F.S. 608.401-608.705).
A Florida LLC generally has the same powers, rights and responsibilities of any natural person and can do such things as:
- Own any property in its name such as cash, checking accounts, brokerage accounts, real estate, vehicles, etc.
- Sue or be sued in its name
- Make contracts, guarantees, incur liabilities, etc.
- Lend money, borrow money, invest or reinvest its funds, etc.
- Hire or fire employees, define their duties, set their compensation, etc.
Limited Liability Company = Artificial Person
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What are the advantages of a Florida LLC?
Limited Liability: Members (owners) are not liable for the general debts of the LLC. As a sole proprietor, you are personally liable for any and all lawsuits which may arise in the course of business including acts by your employees or contactors.
Tax Savings: An LLC can be taxed in any manner it chooses thereby allowing Members to select the tax status that best suits their interests. For example, a Florida LLC electing to be taxed as an S Corporation will generally pay the lowest combined income and employment taxes for its owners and business.
Asset Protection: Ownership interests in the LLC are not readily transferable. So, if a Member is individually sued, a creditor can not easily reach the assets owned by the LLC.
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What are the characteristics of a Florida LLC?
- A Florida LLC is considered a distinct person separate and apart from its members (owners)
- A Florida LLC can be formed for “any lawful purpose,” not just for business purposes.
- All property titled in the name of a LLC is considered owned by the LLC and not its members.
- A Florida LLC can be managed by its members or elected managers.
- Membership interests in an LLC are not easily transferable or traded as are the shares of a corporation.
- A Florida LLC can have one member (single-member) or more than one member (multi-member)
- A Florida LLC can be taxed in any manner it chooses. An LLC can be taxed as a partnership (if two or more members), a regular corporation, an S Corporation or it can be disregarded (if a single-member).
You are not the LLC & the LLC is not You
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What are the Articles of Organization?
The Articles of Organization is the document that creates the LLC and gives it life. The Articles of Organization is similar to a birth certificate for a natural person and is filed with the Florida Department of State.
All information in the Articles of Organization is public information.
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What name can be used for my LLC?
Florida LLC’s can use any name not already used by another Florida corporation or LLC.
The LLC name must be followed by one of the following suffixes: “LLC”, “L.L.C.”, “Limited Liability Company”, “LC”, “Limited Company”, etc.
If you wish to do business in a name other than the official name, the LLC must register a “fictitious” name with the Florida Department of State. For example, if “Acme Printing, LLC” is the name of the Limited Liability Company and wishes to do business as “Acme Printing”, then a fictitious name must be registered.
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What are Members?
Members are the owners of the LLC. Members are similar to shareholders of a corporation and possess ultimate control over the LLC.
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What is a Membership Interest?
Membership interest is the ownership interest in the LLC. The membership interest refers to a member’s share of profits and losses, a member’s right to receive distributions, a member’s right to vote and to participate in management. Membership certificates duly approved by the members can evidence membership interests.
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How is an LLC Managed?
A Florida LLC can be managed solely by its members (member-managed) or managed by elected managers (manager-managed).
Unless provided in the Articles of Organization or Operating Agreement, an LLC shall be a “member-managed” which means all members have a right to participate in managing the LLC. Each member of a “member-managed” LLC is then an agent of the LLC and can legally bind the LLC upon the signing of agreements and contracts.
In a “manager-managed” company, only managers are given the authority and powers to manage the LLC. Only the elected managers have authority to manage and legally bind the LLC. Managers may or may not be members.
It is prudent to organize an LLC “manager-managed” to better control as to who has the the ability to bind the LLC in legal arrangements.
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Who are the Managers?
Managers are the persons appointed by the members to manage the LLC in a “manager-managed” LLC. Managers are like directors of a corporation and can delegate its management authority to agents, officers or employees and can be given titles such as President, Treasurer or Secretary.
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What is an Operating Agreement?
An Operating Agreement is the second most important document of the LLC after the Articles of Organization. The operating agreement is designed to regulate the affairs of the LLC and govern the relations among the LLC, members and managers. Operating agreements are similar to the bylaws of a corporation.
In Florida, the operating agreement may be oral or in writing but it is advisable that operating agreements be written. Operating agreements are internal documents and are not made public.
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What are Minutes and Resolutions?
Since Florida LLC’s are not real persons, all decisions and actions by LLC’s are made through members or managers.
Decisions and proposed actions therefore should be documented to demonstrate what and how the LLC was “thinking”.
Minutes are the written record of issues discussed at official meetings and how those issues are resolved.
Resolutions are formal statements of what was agreed upon. Written consents are resolutions made without a meeting and are often used by single-owned LLC’s when the members and mangers are all the same person. For example, a resolution can read: “Resolved, this limited liability company is authorized to establish a business checking account at ABC Bank”.
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What are the formalities for a Florida LLC?
Florida Statute 608.4101 of the Florida Limited Liability Act requires Florida LLC’s to keep the following records at its principal office:
- A current list of the full names and last known business, residence or mailing address of all members, managers, and managing members.
- A copy of the Articles of Organization and any other documents filed with the Florida Department of State.
- Copies of the LLC’s federal, state, and local income tax returns, if any, for the three most recent years.
- Copies of Operating Agreements and any financial statements of the LLC for the three most recent years.
- Description and value of property contributed to the LLC by each member and time the contributions were made.
All LLC records should be kept in one central place
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What is “Piercing the Veil”?
The term “piercing the veil” is a phrase used when a legal entity’s status is disregarded and its owners (i.e. members) are personally responsible for the liabilities of the LLC. YOU DON’T WANT THIS TO HAPPEN TO YOUR LLC.
Piercing the veil can happen when the LLC fails to pay the annual state fees, if there is fraud on the part of its members or managers, or the LLC has not operated as a separate and distinct person (i.e. no separate books or records, no bank account, the company name is not used on business documents, etc.)
- The LLC should maintain separate books and records
- Personal assets should not be commingled with LLC assets
- The LLC should have its own bank account
- LLC assets should be titled in the name of the LLC
- LLC assets should not be diverted for personal use
An LLC must Act like an LLC to be Treated as an LLC
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How are LLC’s taxed?
An LLC can choose to be taxed in whichever manner it desires for Federal Tax purposes.
- Partnership
- Corporation
- S Corporation
- Disregard entity (single-member LLC treated as a sole proprietor)
Florida follows the same tax treatment as the Federal tax treatment. If an LLC elects to be treated as an S corporation for Federal tax purposes, the LLC will be treated as an S Corporation for Florida tax purposes.
Although an LLC can be taxed in any manner that suits the best interest of its owners, once the tax method is adopted, it could be very costly to change the tax status in the future.
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What is an S Corporation?
An S Corporation is NOT a corporation at all. An S Corporation is not a legal entity. An S corporation is a business entity that elects to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
S Corporations generally result in the lowest combined income and employment taxes for closely held businesses.
An LLC or corporation makes an election to be treated as an S Corporation by preparing and filing IRS Form 2553 within the first 75 days after the entity is formed.
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