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New Business Entity Formation
Limited Liability Companies
Limited liability companies (LLCs) are governed by Chapter 605, Florida Statutes. For purposes of Florida law, a limited liability company is considered a separate legal entity or “person.” This separate status ensures that, absent certain circumstances, the members of the limited liability company are not responsible for repaying the debts and obligations of the company from their personal assets.
Liability: LLCs provide the owners with protection from liabilities that arise in the ordinary course of business.
Taxes: The IRS doesn't actually recognize an LLC as a distinct entity type, so the LLC can be taxed as a Sole Proprietorship for a single member or married couple, a Partnership for an LLC with multiple members, or the LLC can opt to be taxed like a corporation. Unless the LLC chooses to be taxed as a corporation, the profits flow through to the owners. This is known as “pass through taxation.” Under the applied principle of pass through taxation, there is taxation on personal income, but no taxation on the entity level.
Ownership and Management: The owners of the LLC are not subject to limitations regarding citizenship. The LLC can also list other entities as owners including Corporations, other LLCs and Trusts. The ability to own the company as an entity allows members to accomplish their own tax planning strategies. Owners of an LLC are given a percentage ownership of the company. The Operating Agreement enumerates the powers of the respective Members and their rights and responsibilities for operation of the business.
Paperwork: LLCs have less required paperwork than C-Corps and S-Corps. The Operating Agreement and state laws govern the LLC. Managers, Members, Managing Members and so on are not defined as clearly as the Officers and Directors of a corporation. This can lead to confusion unless clearly defined in the Operating Agreement. LLCs are required to file an annual report each year with the Department of State by May 1 of the subsequent year. The annual report does not contain any financial information.
Limited Liability Partnerships
Limited liability partnerships (LLPs) are governed by Chapter 620, Florida Statutes. A Florida limited partnership is formed when at least two persons decide to form and operate a limited partnership with at least one of the partners being a general partner and at least one of the partners being a limited partner.
Liability: Partners are protected from liability from each other's actions. A limited partner is not personally liable for obligations of the LLP, directly or indirectly, by way of contribution or otherwise, even if the limited partner participates in the management of the business.
Taxes: Profits and losses pass through to the owners. This is known as “pass through taxation.” Under the applied principle of pass through taxation, there is taxation on personal income once distributed to the partner(s), but no taxation on the entity level.
Ownership and Management: The LLP, in the Partnership Agreement, must specify what happens when a partner leaves or dies; there is no assumption of perpetual existence. Additionally, the Partnership Agreement enumerates the powers of the respective partners and their rights and responsibilities for operation of the business.
Paperwork: Most operations are determined by the Partnership Agreement, which can be customized to meet the needs of the partners. One must file an annual report with the State of Florida in order to maintain the benefits of an LLP. If one misses the yearly deadline to file the annual report, one loses the protection offered by the LLP and must pay the State of Florida a $500 penalty fee, and a $500 annual report fee in order to reinstate the LLP status.
Corporations are governed by Chapter 607, Florida Statutes. One or more persons may act as the incorporator or incorporators of a corporation by filing Articles of Incorporation with the Department of State, Division of Corporations. For United States income tax purposes, corporations may be designated as either “C” corporations or “S” corporations.
Liability: The Corporation provides protection from personal liability for directors, officers, shareholders, and employees.
Taxes: Unless specifically designated as subchapter “S”, Corporations are taxed under the principle of “Double Taxation”. Profits are taxed on the corporate level and then dividends and income are taxed on the individual level.
Ownership and Management: The Corporation exists beyond the departure of an owner, officer, director, etc. There are no state imposed expiration dates. Shares may be issued for consideration consisting of any tangible or intangible property or benefit to the corporation. A corporation is managed by one or more directors, who need not be residents of Florida or shareholders of the corporation. The Corporate Bylaws enumerate the powers of the directors and officers with respect to the operation of the business.
Paperwork: Pursuant to the Florida Business Corporation Act, Corporations are required to keep and maintain a significant number of records and document most decisions. Additionally, once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC.
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