What Is an LLC?

A form of legal structure available for business owners in Florida is a limited liability company or LLC. Operating as an LLC, business owners, also referred to as members, can expect the same tax and management advantages along with other benefits that other businesses operating as a partnership or sole proprietorship enjoy. Still yet, a fairly new business entity, such as an LLC, can expect some uncertainty in regards to legal formalities that may or may not meet the members' needs and expectations.

The Benefit of Operating an LLC in Florida

One advantage of operating a business as an LLC in Florida is that the LLC is free from taxation on the state level. Another advantage is the fact that on the federal level, members have an option of deciding its own tax treatment. LLCs are treated as disregarded entities for tax purposes by the IRS.

Members can decide whether being taxed as a corporation or as a partnership will provide the most benefits for the LLC. Florida ranked fifth in the nation for having a favorable tax climate for business owners, according to the State Business Tax Climate Index in 2011 prepared by the Tax Foundation.

Are LLC Members Liable for the LLC's Debts?

According to Florida State law, none of the following entities are liable for an LLC's debts:

  • Members.
  • Managers.
  • Managing members.

This includes court orders, decrees, or judgments made against the LLC. A creditor's rights are limited to a charging order only. When an LLC distribution is made, the creditor receives the distribution, but the creditor, according to Florida LLC law, cannot force the distribution of the member's interest.

For Florida LLCs operating as a single-member LLC, a June 2010 decision made by the Florida Supreme Court may justify cause for adding at least one member to the LLC for asset protection purposes.

In Shaun Olmstead, et. al, vs. Federal Trade Commission, the court ruled that through proper court proceedings, an LLC operating as a single member, the ownership interest of the single member can be seized by a creditor to satisfy an unpaid judgment. This ruling denotes an important disadvantage in asset protection for those companies operating as a single-member LLC.

How Do Court Decisions Impact LLCs in Florida?

Due to the LLC legal structure being somewhat new in the state of Florida, both lawyers and business owners are limited in examining and referencing court decision laws in regards to LLCs. This is especially true when comparing the availability of court decisions to reference in regards to corporations and partnerships.

Indubitably, future court opinion will most likely have to address whether the Olmstead case should apply to multi-member LLCs since creditors will attempt to use the case as a base of the argument. Corporations are often considered as being more burdensome due to state and IRS operational requirements. Business owners often choose to operate as a limited liability company because they reap many of the same benefits of corporations but without the additional burdens.

Is LLC Ownership Difficult to Transfer?

Worth noting is that LLC ownership can be somewhat challenging to transfer. C Corporations have additional benefits when compared to an LLC, such as C Corps can see significant tax savings by participating in a Medical Reimbursement Plan. Like partnerships and sole proprietorships, LLCs receive the same advantage of pass-through taxation. In addition, like a corporation, LLCs benefit from limited liability protection. State statutes throughout the United States govern all LLCs.

What Is Involved in Starting Up an LLC?

The initial startup cost and yearly fees tend to be more expensive for LLCs when compared to forming a sole proprietorship or general partnerships. LLCs' members are not provided blanket protection, meaning that certain criminal behaviors or failing to follow certain rules can result in members being held responsible and liable for such behaviors.

Although pass-through taxation can look very attractive and appealing to LLC members, it is not always the best option. Under certain circumstances, LLCs may find that their self-employment taxes are at a much higher rate than that of a corporation. In addition, federal payments, such as Medicare and Social Security, could also be at a higher rate. It is always advised to consult with an attorney and check with your state when forming a company.

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