FAQ ON FLORIDA LIMITED LIABILITY COMPANIES (LLC)
Most frequent questions and answers
The Limited Liability Company (LLC) is a hybrid form of organization, blending features of a corporation and a partnership. It has the limited liability advantage of a corporation and the tax advantage of a partnership. Although LLCs are a fairly recent form of business, they are now recognized by all states and the District of Columbia.
Owners of the LLC are called “members.” If there is no written operating agreement, each member is considered to be a “manager.” An operating agreement can identify specific members to be managers.
As with a corporation, there are a series of steps to form an LLC:
- Apply to your state’s Secretary of State for your company name. The name identifies the form of business by using the words “Limited Liability Company” or “LLC.”
- Plan and agree to an operating agreement.
- File articles of organization with your Secretary of State, including the required filing fees.
- As with incorporations, you will need a designated registered agent and office to be filed with your Secretary of State.
- Be sure to obtain licenses and permits at the local, state, and federal level and pay the necessary fees.
You will need an Operating Agreement and you will also need an LLC Membership Interest Purchase Agreement if you are going to sell an interest in your limited liability company.
Each year, you will need to file an annual report with your Secretary of State.
If an LLC is structured properly, it is taxed in the same way as a partnership or S corporation. That is, each member/owner is allocated a share of the profit or loss, which is included on his or her state and federal tax returns. For tax purposes, LLC members are generally considered to be self-employed. That means they are responsible for their own estimated income taxes and related taxes. An LLC is called a pass-through entity.
Business income that passes through to an individual from a pass-through entity and income attributable to a sole proprietorship will be taxed at individual tax rates less a deduction of up to 20% (under the rules, it’s possible that you could have no deduction). The rules for calculating the deduction can be complicated, depending on your situation. You should consult with your accountant to determine if you qualify for this additional 20% deduction.
It is important to make sure that an LLC is structured properly or it can be taxed like a C corporation.
Beyond a member’s investment in the business, he or she is not personally at risk for debts or other liabilities of the business. A member’s personal assets are not considered to be liable for the actions of the business, unless the member guarantees a debt of the business or acts in a way that opens opportunity for liability.
The LLC is considered to be perpetual unless certain events take place. The LLC would be dissolved if a time is specified or a triggering event takes place as specified in the articles of organization. Other events that would trigger dissolution are:
- A member withdraws from the organization, and remaining members do not agree to continue the business. (This possibility can be anticipated and become part of the LLC’s Operating Agreement.)
- All members agree and give their written consent to dissolve.
- A court order requires dissolution.