Pros & Cons of Limited Liability Companies in Florida

By Joe Stone

A limited liability company, or LLC, is one form of legal structure you can use in Florida to operate your business. As an LLC owner, called "member," you can generally expect to realize the same benefits of incorporating your business, as well as the tax and management advantages of a partnership or sole proprietorship. However, because the LLC is a fairly new form of business entity, legal uncertainty remains regarding whether the LLC will meet the needs and expectations of its owners.

A limited liability company, or LLC, is one form of legal structure you can use in Florida to operate your business. As an LLC owner, called "member," you can generally expect to realize the same benefits of incorporating your business, as well as the tax and management advantages of a partnership or sole proprietorship. However, because the LLC is a fairly new form of business entity, legal uncertainty remains regarding whether the LLC will meet the needs and expectations of its owners.

Favorable Business and Tax Climate

A Florida LLC has the advantage of choosing its own tax treatment on the federal level and being relatively free from taxation on the state level. The IRS treats LLCs as a disregarded entity for tax purposes. This means the LLC can choose to be taxed as a corporation or partnership, depending on which tax treatment benefits the LLC's business owners. According to the 2011 State Business Tax Climate Index prepared by the Tax Foundation, Florida ranks fifth in the nation in overall tax climate for businesses. Additionally, LLC owners benefit from Florida's lack of a tax on individual income.

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Liability Protection

Protecting your personal assets from the liabilities and debts of your business is a primary reason to form your business as an LLC. Florida LLC law states that an LLC's members, managers and any managing members are not liable due to being a member or manager for the debts and obligations of the LLC, including any court judgments, decrees or orders made against the LLC. Additionally, a member’s LLC interest can be protected from seizure by creditors attempting to collect a personal debt. Florida LLC law generally limits a creditor’s rights to a charging order only. This means that a creditor receives the debtor-member’s LLC distribution when one is made, but that the creditor cannot force a distribution of the member’s interest.

Single-Member LLC Asset Protection Limitations

A June 2010 decision by the Florida Supreme Court in Shaun Olmstead, et. al, vs. Federal Trade Commission placed limitations on the asset protection available to the owner of a single-member LLC. In that case, the court ruled that the ownership interest of a single-member LLC can be seized by a creditor through court process to satisfy an unpaid judgment against the sole member. This case signifies a disadvantage in asset protection for owners of a single-member LLC as opposed to a multi-member LLC. An owner of a single-member LLC may have to consider adding at least one member to the LLC to avoid this asset protection limitation.

Legal Uncertainty

The Florida Supreme Court’s Olmstead decision is an example of a general disadvantage to forming a Florida LLC – uncertainty regarding future court decisions interpreting LLC statutes. Florida LLCS are a relatively new legal structure for a business and, as compared to corporate or partnership law, there are far fewer court decisions for lawyers and business owners to rely on when making the decision for form an LLC. For example, it is foreseeable that in light of the Olmstead decision a creditor will attempt to use the Olmstead case to argue that it should apply to multi-member LLCs as well as single-member LLCs. Whether or not the Florida Supreme Court will accept or repudiate this interpretation of Florida LLC law will not be known until there is a future court opinion addressing the issue.

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The Pros & Cons of LLCs

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Operating Agreement for Florida Limited Liability Company

Florida law does not require a limited liability company, or LLC, to have an operating agreement. The LLC owners, called members, are free to operate the business of the LLC as they see fit, subject to the limitations and requirements of Florida LLC law. However, operating an LLC in this manner can have its drawbacks if the default provisions of Florida LLC law do not meet the needs and expectations of the LLC owners. To avoid this situation, owners of an LLC should adopt an operating agreement tailored to their business needs.

Can an LLC Be Sued?

Limited liability companies (LLCs) are a relatively modern business structure governed by state laws. Wyoming and Florida first recognized these business entities in the 1970s. As of 2010, all 50 states and the District of Columbia recognize LLCs and have state statutes that govern the creation, management and termination of LLCs. Like corporations, LLCs are separate legal entities that have the ability to sue and be sued.

Operating Agreement for a Single-Owner LLC

The owners of an LLC are known as members. An operating agreement for a single-owner/member LLC is an important document that is useful in a number of ways. For example, the operating agreement can be used to alter default provisions under state LLC laws for operating an LLC that may be more suitable for a multi-member LLC than a single-member LLC. Although most states do not require an LLC to adopt an operating agreement, all states do permit it and an LLC owner should consider adopting an operating agreement tailored to the LLC’s business needs.

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