A Limited Liability Company, also known as an LLC, is a hybrid organization with characteristics of a corporation and a partnership. LLCs can choose to be taxed as a partnership or a corporation. LLCs are run by a Manager(s) and can be owned by a Member or several Members. Management of a LLC is governed by Florida statute unless members agree otherwise. A carefully drafted operating agreement is one way to control and protect the LLC’s assets among other things.
The following is a summary of why some people choose LLCs:
1. Limit Owner’s Liability. The primary reason for forming a limited liability company is to limit the liability of the owners. If you are sued, your creditors should not be able to get your personal assets.
2. Charging Order Protection. Interests in LLCs are protected from the claims of creditors of their members. For example, if a creditor of a member gets a charging order against the interest of the member, the creditor cannot acquire the debtor’s interest in the LLC. Therefore, the creditor cannot acquire the assets of the LLC. As a result, the creditor must wait until the manager makes a distribution to the member/debtor to get paid. Corporations do not enjoy this protection.
3. Taxes. Most LLCs are not subject to Florida’s corporate income tax. Like partnerships, profits and losses will flow through to the owners. This avoids double taxation.
4. Flexibility. LLCs have the flexibility to draft their operating agreement to cover issues such as members’ contribution obligations, member and management voting powers, profit and loss allocations, governance structure, members’ distribution rights, etc. Amendments and organizational changes related to the LLC can generally be made in the operating agreement alone (without amending the articles of organization).
5. Anonymity. LLCs provide a degree of anonymity. LLCS help keep your name out of databases and asset searches.
6. Formalities Not Required. A corporation requires specific formalities be followed including annual meetings of shareholders and directors each year, meeting minutes which are kept with the corporation’s records, etc. These formalities are not required for LLCs. However, it is a good idea for your LLC to document major decisions even though these formalities are not required.
7. Allocations of Profits and Losses. Unlike S corporations, LLCs can make special allocations of profits and losses among its members. S corporations have one class of ownership with profits and losses allocated according to the percentage of ownership.
As you can see, LLCs are more complex than meets the eye. Having an experienced business lawyer draft or review your agreement will often shed light on things that are often clouded by the excitement of starting a business. Our firm can help your business start off on the right foot.
Call (407) 862-9449 to schedule a free case assessment and discuss your business needs.