A limited liability company (“LLC”) is fairly easy to form, and results in the creation of a new entity separate from its owners. As a result, it offers the owners some personal liability protection from the LLC’s business activities. The members or a manager usually manage the business operations.
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Formation
A limited liability company is somewhere in between a corporation and a partnership. The operating rules for a corporation are generally found in the Florida Statutes, while the operating rules for a partnership are generally found in the partnership agreement. A limited liability company finds some of its operating rules in the Florida Statutes and some in its operating agreement. A limited liability company is generally formed by one or more individual owners (members) filing articles of organization with the Florida Secretary of State. As part of the formation there are other corporate records that must be created and kept as part of the corporation’s official records (such as an operating agreement, minutes and maybe membership certificates). It would be a big mistake for two or more individuals to go into business together as members in a LLC without a written operating agreement.
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Assets
Assets are typically owned by the LLC and deployed in the business venture. Problems can arise when business assets are not properly designated as being owned or not being owned by the LLC. Care needs to be given to each asset used by the business to make clear who owns the particular asset in question.
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Liabilities
Liabilities, such as for office supplies and the like, are generally the responsibility of the LLC, as opposed to the members. In the event a LLC fails, the individual members are typically not responsible for the unpaid debts of the business.
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Fictitious Name
Typically a LLC is operated under the legal name of the LLC. The members may wish to use a business name different from the name of the LLC, and may protect the use of the business name by making a fictitious name filing with the Florida Secretary of State.
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Taxation
A new LLC can usually be created and assets transferred to it in a tax free transaction. The profits and losses from the operations of a LLC can be taxed in a number of ways, and part of the formation process includes identifying the tax status for the entity, and reporting this to the IRS. For example, if there is only one owner of the LLC, it can be ignored as a taxable entity for tax purposes, and its profits and losses reported on the owner’s individual income tax returns. Or the LLC can elect to be taxed as a corporation or S corporation. If there are two or more members, the LLC can elect to be taxed as a partnership, corporation or S corporation. The tax form used to report the profit and losses of a LLC each year depends on the election made by the LLC (Form 1040, 1065, 1120 or 1120S, as the case may be). This flexibility of being able to elect the entity’s tax status and its liability protection for the members has made the LLC a very popular business vehicle.
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