What is a Florida LLC?
The Limited Liability Company, otherwise known as an "LLC", is a popular business structure in Florida. An LLC is a business entity separate from you and the members have limited personal liability for company debts. The LLC is popular because it provides many of the same benefits as the corporation without some of the more onerous requirements.
For example, the corporation, by operation of Florida law, has to have an election each year to be taxed as an "S-Corp." The owners of the S-Corp must be quite particular because there are limits on who can and can’t own shares of this corporation. The S-Corp cannot own another corporation.
In contrast, each LLC owner is referred to as a member. LLC’s can be taxed as a corporation, but they can also be taxed like a sole proprietorship or partnership. The LLC is not required to elect to be taxed as an S-Corp. This flexibility allows the company to avoid "double taxation" where the income of the corporation is taxed at the corporate level and again when dividends are paid out to the shareholders.
• Florida Statutes, Section 608.403(1) – "Limited Liability Company" means a limited liability company formed under [this Chapter] or under the laws of any other state or foreign country or organized under federal law .
• Florida Statutes, Section 608.428(1)(a) – "Limited Liability Company" or "LLC" means a legal business entity that is separate from its owners, and whose owners are protected from the debts and obligations of the LLC to the extent allowed under law, and may be taxed, for purposes of federal and state taxation, as a corporation, a partnership, a disregarded entity, or an S corporation.
• Florida Statutes, Section 608.431(1) – (6) – "Limited Liability Company" means a legal business entity that is separate from its owners, and whose owners are protected from the debts and obligations of the LLC to the extent allowed under law, and may be taxed, for purposes of federal and state taxation, as a corporation, a partnership, a disregarded entity, or an S corporation.
An LLC also allows the members to do business like the following:
The advantages of an LLC are that there is no limit to the number of persons who can be an owner (member) nor are there limits who the persons can be. There is also, generally speaking, no requirement that meetings need to be held, however the members often choose to follow some of the more formalities of a corporation, especially if the company is financial in nature.
Starting an LLC in Florida
The formation of a Florida LLC is often undertaken with the inclusion of a substantial number of outside parties, such as accountants, financial planners, estate planning attorneys, and possibly general counsel. Many LLC’s will also be created in a manner set forth in a document referred to as an "operating agreement," which addresses issues such as profit or loss sharing, amendments to the operating agreement, interests in the LLC, and contributions to the LLC. Although these issues are vitally important, everyone involved should carefully consider the requirements for formation as well as possible pitfalls that may arise from failure to comply with the Florida Statutes.
The first step is to select an appropriate name for the new LLC. The name selected must contain the words "Limited Liability Company" or the abbreviation "L.L.C." or "LLC" in order to comply with Florida Statutes Section 608.401. The name must also be distinguishable from the names of other entities registered with the Department of State Division of Corporations (unless the "owner" may consent in writing to the use of a similar name). Lastly, the name should not imply that the LLC is a licensed professional company unless it is actually a valid licensed professional association under Chapter 621 of the Florida Statutes.
The next step is to further investigate whether the name that has been selected is available for use and compliance with other statutory provisions and then file your "Articles of Organization" with the Department of State. The filing fee is $125.00.
Each Florida LLC must have at least one member, which is a person or entity with a membership interest in the LLC. At least one of the members (or managers) must be a natural person over the age of 18. When an LLC is managed by more than one individual, the percentage of interest for each member should be set forth in its operating agreement or other regulating document. A membership interest in an LLC is similar to a "share" in a corporation; ownership of a membership interest carries with it certain management rights, rights to profit and loss, voting rights, and voting percentages. The operating agreement should address how profits and losses will be shared, but also important are how profits and losses will be shared in liquidation. It is not uncommon for an operating agreement to provide for a disproportionate sharing of profits and losses or an alternative allocation of profits than what would occur if the LLC were liquidated. Members should discuss all of the issues in this area with an accountant and a lawyer before proceeding with its formation.
At least one person or domestic entity must be named as a manager of the LLC. If the LLC does not vest management authority in any managers, it must vest such authority in its members. Notwithstanding this limitation, Florida Statutes Section 608.427 provides full power and authority to manage the LLC to the members, except as may be otherwise provided in the LLC’s operating agreement.
In addition to appointing a registered agent, the initial filing of its Articles of Organization, and entering into and adopting the operating agreement, each new LLC must elect to be taxed as a corporation or as a partnership. Each new domestic LLC formed in the State of Florida, however, will be taxed as a member-managed LLC by default.
Florida Limited Liability Company Operating Agreement
As mentioned throughout our Florida LLC article, an operating agreement is a document that governs an LLC. An LLC operating agreement is not a requirement for Florida LLCs, but we generally find it helpful to the LLC Members to have one. Another reason to execute an operating agreement is for asset protection purposes. Florida charging order protections turn on whether an operating agreement exists or not.
The Florida Limited Liability Company Act will govern an LLC if the LLC does not provide otherwise in the operating agreement. A well drafted LLC operating agreement should include the following provisions: We find that having an operating agreement is particularly important in single member and husband & wife multi-member LLCs. An operating agreement can make Florida LLCs much easier to operate.
Taxation Rules in Florida
Taxing a single-member Florida LLC is nearly the same as taxing a sole proprietorship, whereas a Florida multi-member LLC is taxed similarly to a partnership, but the owners do have the option of choosing to be taxed like a corporation for tax purposes. A Florida LLC with only two owners is referred to as a "multi-member Florida LLC" for these purposes and is taxed similarly to a partnership, but subject to special rules, as follows:
- A Florida multi-member LLC doesn’t have to file a Form 1065 return reporting the LLC’s income and expenses. The business income is passed through to the owners.
- The owners of the LLC must report their share of the income on their individual tax returns. Because it is considered self-employment income, earnings from a multi-member Florida LLC are not subject to the corporate income tax because a Florida multi-member LLC is considered a pass-through entity.
- Each owner of a Florida LLC must pay self-employment taxes (Social Security and Medicare taxes) on their share of the income, which is reported on IRS Schedule C, where it then becomes subject to the individual tax.
A multi-member Florida LLC can choose to treat itself as a corporation for tax purposes. If the LLC does so, it will be subject to double taxation, meaning that the LLC will be taxed at the corporate rate on its profits and then the individual member will be taxed again on any dividends they receive when they file their personal tax returns.
A multi-member Florida LLC can convert to a single-member LLC without triggering an event of liquidation and can also convert back to a multi-member LLC without triggering an event of liquidation if it adds another member after the conversion.
Annual Requirements for Florida LLCs
Much like Florida corporations, Florida Limited Liability Companies are also required to timely file a recurring report with the Division of Corporations.
In Florida, a Limited Liability Company must file its annual report each year by May 1st. It is the responsibility of each Limited Liability Company to file their annual report by the deadline each year to avoid an administrative dissolution by the Florida Department of State’s Division of Corporations .
The annual report must include:
Every Limited Liability Company registered in Florida must file its annual report each year to renew its status and keep information pertaining to the Limited Liability Company, such as address of the principal place of business, the name of the registered agent, the name of the Limited Liability Company, and the names and addresses of each manager or member, updated and current with the Florida Department of State’s Division of Corporations. Failure to timely file the annual report may result in the administrative dissolution of the Limited Liability Company.
Benefits of Setting up an LLC in Florida
The Advantages of Creating a Florida LLC
When it comes to forming an entity, most people are looking for the entity that has the least liability for the least amount of money spent on taxes as possible. This applies both to the formation and starting of a business as well as to the daily operations of the business.
Personal Asset Protection
By creating an LLC, the owners’ (members’) personal assets are protected against creditors of the LLC. In other words, the creditor’s only remedy is to obtain as much as possible from the LLC in order to satisfy their claim against the LLC. One way this can be accomplished is by either distributing cash to the members so it can be reached by the creditor or entering into a loan so that a creditor can reach the money when certain "triggers" occur, e.g. a default.
One caveat to this general rule is that if a member was involved with a breach of law, such as breach of duty, the court could "pierce" the LLC veil and go after the member’s money directly. It’s important in these cases to have an attorney that can advise what can be done and what the liability may be.
Tax Flexibility
Most, if not all, LLCs make an election to be taxed as a pass through entity for tax purposes. This means the income and loss of the LLC passes on to the member(s) and taxed at their rates. For instance, if there is one member and $50,000 of income and one employee with $10,000 in salary, the net profit for that person is $40,000. The federal government would then tax that person in his or her individual return. This also works the same if the LLC has one member and a distribution of $10,000 to the owner (a member is permitted to distribute as little or as much as they want). The LLC will have a tax on it and the owner will have to pay tax on the distribution. When there are more than two members, the LLC can elect to be taxed as a partnership to take advantage of the same pass-through treatment.
Minimal State Taxes
Florida does not impose a state tax on the personal income of its residents. As such, this is one of the main reasons people form LLCs in Florida. Not only do they tend to have no state income tax, LLCs have the benefit of only being taxed on income generated in Florida. Many states tax their residents along with income generated outside of the state. In this way, an LLC in Florida can be more compliant than merely relying on an LLC in a state that does not impose the state income tax on its residents.
All these reasons make Florida an attractive place to form an LLC. Should you decide to form an LLC, it is advisable not only to consult an attorney, but an accountant as well. Both professionals will be able to help determine whether a Florida LLC is right for your business and assist in its implementation.
Common Errors and Filing Issues
While Florida’s LLC laws are generally business-friendly, there are a number of pitfalls that LLC owners should avoid in order to maintain ongoing legal compliance and ensure the continued good standing of their business.
One of the most common mistakes is failing to appoint a proper registered agent. Although you may think you can be your own registered agent, in reality the law requires that these duties be fulfilled by an actual registered agent, whether that be a professional service or a stockholder. Failure to appoint a registered agent will lead to loss of good standing, and if not corrected, could potentially lead to a lawsuit being served as the registered agent.
Other common errors that LLC owners should look to avoid are: Even if none of these issues seem relevant, there are many administrative tasks that should be addressed at least once a year, including filing the annual report and keeping accurate and up-to-date records. Compliance with these basic rules is the only way to ensure your LLC is maintained pursuant to Florida law.
Recent Updates and Changes to Florida LLC Law
Florida LLC laws have recently undergone some updates and changes to better facilitate the needs of present-day, modern, entrepreneurial businesses. One notable addition is the inclusion of provisions to govern series LLCs, which was signed into law on July 1, 2009. The Series LLC, as the name implies, provides for the creation of multiple limited liability companies, or series, within a single LLC. Each series will operate the same as the traditional LLC, but will keep its assets and liabilities segregated from the other series of that LLC and from the other series of the other LLCs within the larger Series LLC. The series do not have to register separately with the State of Florida and can be formed under the Florida Series LLC Act directly through Inclusion of a Series Clause in the LLC Articles of Organization.
Another addition to Florida LLC laws is section 605.0410 which was approved on July 1, 2013 and addresses the changes of members and managers of the LLC . The section simplifies the process and directs the alteration of the members and/or managers of an LLC to be contained in an attached statement to the Articles of Organization filed with the Secretary of State. No longer will an amendment to the Articles of Organization be required upon the transfer of a membership interest, although an amendment may still be pursued in the alternative.
The most important change in Florida LLC laws has been the repeal of Florida Statute Section 608.441. This is significant for those in the coastal real estate market because the section previously blocked non-residents of Florida from forming LLCs to own coastal property. Although anyone can use an out of state entity to purchase coastal property in Florida, doing so can lead to perceived tax evasion and should not generally be attempted without prior consultation with a knowledgeable accountant or tax attorney. Further, Florida Prepaid College Board Savings Plan accounts cannot be owned by single member out of state entities owning Florida coastal property.