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.
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.
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.