When starting a business you have a few options in terms of business structure. Typically the choice is between forming as a sole proprietor (if you are one person), a partnership (if you are two people), and then finally as an LLC or corporation. Limited liability companies (LLCs) are businesses built on a specific structure. They are unique to forming a business in the United States and provide a high level of liability protection.
Forming an LLC means that your business will be a completely separate entity. Members (owners) of an LLC are not personally liable for the company's debts or liabilities. While combining certain aspects of a corporation, they also incorporate tax benefits of a partnership or sole proprietorship.
What are the Advantages of a Florida LLC?
Limited Personal Liability
When your business is considered a sole proprietorship or partnership, you are considered one and the same with your business. LLCs are completely responsible for their own debts, which means that the members (owners) are not. It also means that if your business partner or an employee is accused of negligence, your personal assets will be safe. The same cannot be said about a sole proprietorship or partnership, you will be completely open to losing your personal assets should something go wrong.
Corporations do offer limited liability, but there are a huge number of hoops to jump through. Although sometimes this can be important for the management of a huge enterprise, when it comes to small, medium, and ever large businesses, this is unnecessary.
Rather than being required to hold shareholder meetings, make annual reports, and be required to take substantial recordkeeping, this is omitted with an LLC. The only paperwork required with an LLC in Florida is the formation paperwork and annual filing fee.
When formed anonymously one of the benefits of an LLC is that it protects the privacy of its owners. By using a registered agent who is not a member of the business, you can keep your name completely unassociated with your business.
LLCs have huge tax advantages that include the ability to elect taxation. Because LLCs do not have their own federal tax classification, they can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.
Additionally, LLCs are classified as a “pass-through” entity. Pass-through taxation occurs when an LLC does not pay LLC taxes or corporation taxes. Instead, the profits and losses are passed on to the owners. Owners should pay taxes on their personal tax returns for any profits. They will then be able to write off any business expenses.
- Ownership flexibility: Although S corporations enjoy pass-through taxation, similar to LLCs, there are also ownership restrictions. LLCs can have as many owners as they would like, who reside in any country, while still benefiting from pass-through taxation.
- Management flexibility: Corporations have specific structures in regards to management. This includes a board of directors, specific policies, and officers. In an LLC, there is no formal structure. LLCs can create articles of incorporation themselves, and run the business however they choose to make decisions.
- Flexible profit distribution: LLCs are not required to distribute profits equally or according to ownership. This means that although there may be two owners in an LLC, they may agree that one person will do more work, and receive 75% of the profits. The same cannot be said for a corporation.
Disadvantages of Forming an LLC
- Extra fees: In Florida, there is an annual filing fee of $138.75, as well as a formation filing fee of $125.
- Income splitting may be subject to payroll or self-employment taxes.
- Members must consent to the transfer of ownership.
Who Should Start an LLC in Florida?
LLCs offer asset protection benefits. This makes an LLC a great option for small business owners, as well as sole proprietors and partnerships. Not only does it offer asset protection benefits, but it also concerns the actions of the other members, and allows for a lot of tax benefits.
Professionals that often operate under an LLC include, lawyers, doctors, architects, engineers, accountants, chiropractors, and real estate investors.
How a Business Lawyer Can Help
Forming an LLC requires a good amount of paperwork, which a business lawyer can help with. This may include establishing the LLC and ensuring you maintain compliance. Hiring a business attorney means that you will have help to understand if an LLC is the best option for you, and to define the financial and management structure of your LLC as you grow.