Florida LLC

An LLC is a Limited Liability Company.  It is not a Corporation.  The LLC is a hybrid type organization with characteristics of both a corporation and a partnership.  In fact, you can choose to be treated for tax purposes as either a partnership or as a corporation.  A Florida LLC is created under the Florida Statutes and is run by a Manager and is owned by Members who then incur gains and losses.  A carefully drafted Operating Agreement will control much of  the protection of the LLC’s assets among other things. While the cost of an LLC in Florida is only $125.00 to form with the state, some attorney’s charge very small amounts and some charge even higher amounts.  You will want to talk with your attorney for your unique business.

The following are just a summary of why some people have used LLC’s:

1 Reduce the incentive of lawsuits being filed
2 if you are sued, your creditors should not be able to get to your personal assets
3 Extinguish the claimants’ economic incentive to sue
4 LLC’s provide a degree of anonymity
5 Help keep your name out of databases and asset searches
6 Insulate your assets from being taken by creditors
7 Increase leverage in bargaining with creditors
8 Make collection on judgments difficult or impossible
9 Minimize the financial, emotional, and time consuming risks of lawsuits

Both Single Member Florida LLC’s and Multi Member LLC’s used to enjoy the safety net of charging order protection.  Here’s what charging order protection is: A creditor of a partner in a partnership or member of an LLC is supposed to be limited to getting a charging order against the interest of the partner or member. As a result, the creditor cannot acquire the partnership (or LLC) interest of the debtor and therefore cannot acquire the assets of the partnership (or LLC). As a result, the creditor traditionally must wait until the manager or general partner makes a distribution in order to get paid. Of course, with a carefully drafted Operating Agreement the manager or general partner has authority to delay distributions.  Charging order protection is not afforded to Corporations.  If you own shares of a corporation, a creditor can generally gain control of those shares much more easily than it could gain control of an LLC or partnership interest.

What is even more of a deterrent is that a creditor with an active charging lien may be forced to pay taxes on the charging lien even though it receives no money for it.  A 1997 IRS Revenue Ruling provides that where a creditor holds a charing lien and the partnership or LLC does not distribute partnership income, the creditor with the charging lien, not the limited partner/member, bears the the tax burden on allocated income.

Forming an LLC or other entity should not be performed as a diy or out of the box  formation.  Various things can determine how much PLG charges to draft your documents and Operating Agreement.  While the cost of an LLC in Florida is only $125.00 to form with the state, some attorney’s charge very small amounts and some charge even higher amounts.  The price you pay now reflects the predictability and transparency of resolving any future conflict.  The cost of litigating business issues can sometimes cost many thousands of dollars and may result in your termination from the business altogether.  Its best to be a cautions now by making a small investment.  The following are some items you should carefully consider purchasing in addition to your LLC.

1. Operating Agreement: Every Limited Liability Company MUST have an Operating Agreement to complete the owner’s personal protection in the face of Litigation, provide for buyout, termination, hiring, admission of new members and other important contingencies occurring during the life of your business. The Operating Agreement MUST provide a clear outline of the rights and responsibilities of all parties to the LLC. A good Operating Agreement covers (at minimum) issues such as voting rights; rights and responsibilities of the Managers and Owners; financial matters; methods for amending the Operating Agreement; Owner withdrawal; dissolution of the Company; what happens if an owner files for bankruptcy, and the Buying and selling of the company’s Ownership interest. It is a good idea that LLC governing procedures be established and memorialized in a written Operating Agreement at the time of incorporating because after the formation of the Florida LLC, matters may not be so easily agreed upon. We can draft the Operating Agreement, which is a contract, to spell out the rights and obligations of the parties in the event disagreements occur. Common misconceptions are that Family members or best friends don’t need Operating Agreements.  These are more often the times where an Operating Agreement is needed most, because it could settle some issues without the expense of litigation.

1. Subchapter S Election: Choosing this election allows your LLC offers two principal advantages. First, profits and losses will flow through to the owners just like with a partnership. This avoids double taxation. Second, employee-owners may be able to reduce federal employment taxes by as much as 15.3 percent on the portion of their income on the first $95,000 per owner per year and 2.9% on all earnings after that. This allows you to increase your distributions and reduce your wages. If you want your business to have these major tax advantages there is an additional charge for us to complete the Federal requirements and draft the Articles of Organization, Operating Agreement, Resolutions and Membership certificates to reflect the companies Tax status as an S-Election.
2. Living Trust – Some people choose to form an LLC to hold Real Estate.  In these cases, we suggest also purchasing and forming a Living Trust to hold the LLC. This way the Trust will protect the LLC and the properties that it holds from going to probate.
3. DBA (Doing Business As or Fictitious Name)- Some clients want to do business under a second name that is different than that of their Florida LLC.  If you would like to have a secondary name to advertise your corporation under it is required to have what is called a DBA or fictitious name registered correctly under the corporation.
4. Management Agreement -Every manager managed LLC should enter into a written Management Agreement between the LLC and its Manager(s) for maximum protection and separation. The Management Agreement should be completed in such a way so that it complies with your Operating Agreement.  The primary functions of a Managment Agreement are to prohibit the Manager(s) for competing against the LLC during and after their employment with the company, prohibits the Manager(s) from soliciting the Company’s Employees to work somewhere else, prohibit the Manager(s), from soliciting the Company’s clients, prevent the Manager(s) from disclosing the Company’s important information, explain the terms of employment of the Company’s Manager(s).
5. Independent Contractor Agreement – having your workers being classified as Independent Contractors is important on many levels.  If you do not want to be vicariously liable for the actions of your workers (you being liable for the negligent acts of your workers), having an Independent Contractor agreement is the best protection.  Additionally, issuing a 1099 to a worker prevents the IRS from coming after you because of the workers failure to do their own tax withholdings.
6. Employment Agreements - Even if you plan to not hire any employees, an Employment Agreement is an important Asset Protection tool in the face of a planned or unforeseen Bankruptcy. A well drafted employment agreement would allow a business owner to protect his or her wages utilizing the appropriate exemptions to protect this money.  There are important steps to take after implementing this agreement that will be discussed with you.  Also of concern and a great reason to purchase an Employment Agreement is for protecting your customer lists, strategies, trade secrets and other intellectual property from being stolen by your workers without recourse.  Further, many clients want a non-competition clause to prevent former employees from attempting to work for competitors and damage your business with your own ideas. Additional aspects of an employment agreement include:  the beginning and ending dates of the employment period, the amount of salary and time period it will cover, a description of duties and title for employees, agreed paid vacation days and severance pay are all inclusive.
7. Indemnification Agreements - When you formally organize your business, your actions are protected as a Member (owner of a company), but your actions when you are acting as a Manager may not be protected if you are sued. Therefore, it is strongly recommended to include an Indemnification Agreement.
8. Home Office/Vehicle Lease/Equipment Lease – using your home office or vehicle for business purposes offers tremendous tax advantages.  If you would like to take advantage of these important deductions, we can draft these lease agreements for you.
9. Loans to Your Business (Security Agreement) - The proper way to loan your business money (not in exchange for ownership equity) is to have a loan agreement and promissory note signed between you and the LLC. The effect of this transaction is such that the loaned money is seen by the IRS as a loan to be repaid and not capital without strings attached. Additionally the security agreement, when registered with the UCC, acts secures the loan against subsequent corporate creditors, thus keeping you first in line to recover the loaned money.
10. Trademark – Most clients want their corporate name protected from others using it.  If this is your feeling as well, then a Trademark is a must. We can have your name trademarked and even perform the due diligence (Trademark name searches) and continue to monitor and keep up with the formalities.
11. Copyright- We can also help you to secure your rights as owner of your creative works and the right to keep others from using the work without your permission. Copyright protection may be applied for with regards to all original expressions, including art, sculpture, music, songs, choreography, crafts, poetry, flow charts, software, photography, movies, CD-ROMS, video games, videos, web sited and graphic designs. Copyright protection lasts for many years. Most often it lasts for the life of the work’s creator (its author) plus 70 years. In cases where the creator is a business, the copyright lasts between 95 and 120 years.

Unfortunately on June 24, 2010  in a recent Florida Supreme Court decision, Olmstead v. Federal Trade Commission, Single Member LLC’s charging order protection was denied as against the Federal Trade Commission.  Because the Florida Limited Liability Company Act does not specifically make a charging order the exclusive remedy of a creditor (like in Wyoming and Delaware), the creditor can use other remedies to gain control of a single member LLC interest.  This means a creditor can gain total control of the LLC.  Therefore and until Florida changes its statute to add more protection like in Delaware or Wyoming, anyone operating under a single member LLC would be well advised to carefully reevaluate their structure and make changes to be more protected.  Adding a family member or other trusted person to make your LLC a multiple member LLC is not difficult and you can even make them a nonvoting member.

Wyoming allows LLCs to easily reform themselves into a Wyoming LLC. The continuance process allows a Florida LLC to reorganize in Wyoming and keep the same formation date, EIN number and credit history. Your current business will otherwise be unaffected.  The advantage is that you now have a an LLC which is protected with charging order protection.  Our office charges a low fee to convert your LLC’s into a state offering the asset protection you need.

The Olmstead case is a reminder that asset protection law is constantly evolving and it is necessary to periodically consult with an attorney even if you already have an asset protection plan in place.