Forming a limited liability company (LLC) gives owners a layer of protection. This is critical given the uncertainties being brought about by Covid, most notably the economic downturn it is causing. An LLC is one of the four business structures in the U.S., along with sole proprietorship, partnership, and corporation. It is relatively new but is fast becoming popular since it offers the benefits of both corporation and partnership into a sole business structure. This article will take a look at why business owners should consider setting up an LLC, and how to start one here in Florida.
Why set up an LLC?
An LLC protects business owners from personal liability — meaning, their personal assets will not be at risk in case the business goes bankrupt or is sued. Additionally, an LLC offers business owners flexibility in terms of income distribution, taxation, membership, and record-keeping. An LLC, in particular, is not taxed like a corporation, in which the business entity is considered separate from the owners. This means taxes on income in an LLC are calculated through the personal income tax of the business owners, in turn leaving more income to distribute.
In addition, an LLC can have just one member, who will have sole control of all income, but is protected by limited liability. Conversely, it can have multiple members, including corporations and other LLCs that each will have a say in business affairs and will be entitled to a portion of the income generated. Record keeping in an LLC is more lax as well, as this setup promotes operational ease. This means less paperwork and lower costs.
How can a business owner start an LLC?
The general process of forming an LLC is mostly consistent throughout the country, but the particulars vary from state to state. Here in Florida, the steps for starting an LLC are as follows:
1. Give the business a name. The first step anywhere is to come up with a name for the business. But when it comes to setting up an LLC in Florida, business owners will have to ensure that it is unique from any other company in the state. It must also end with some form of the term Limited Liability Company, or its abbreviations (i.e., LLC, L.L.C, Ltd., and Co.). Business owners can do a quick name-check on the Florida Sunbiz website to verify the availability of their business name.
2. Get a registered agent. Florida mandates all LLCs to have a registered agent, or someone duly authorized to physically accept legal paperwork on the company’s behalf in case it gets sued. This agent can either be any legal-aged resident of Florida or a business entity registered to do business in-state. The entity must also have a physical address.
3. File the paperwork. Next, business owners must file the Articles of Organization paperwork with the Florida Department of State Sunbiz website. It can be done either online or by mail, and requires a $125 fee. The articles must include the following:
• Final name of the LLC
• Name, address, and signature of the registered agent
• Name(s) and address(es) of the managers (if any)
• Effective date of the LLC
(Note: Without a listed manager, the state will assume that the LLC is member-managed, and will protect the privacy of each.)
4. Comply with tax and regulatory requirements. The final step is to complete Florida’s tax and regulatory requirements, notably an Employer Identification Number from the IRS. It is mandatory for LLC with multiple members, or if the LLC’s sole owner has employees (who must also be registered for the Florida Reemployment Tax). LLCs will also be required to secure state and local business licenses in most cases, and a seller’s permit if the business sells a product.
Aside from keeping the above steps in mind, business owners who want to set up an LLC must also seek legal counsel given how Florida’s business laws can change at any given time. It last happened when the Florida Revised LLC Act was passed in 2013, which means new amendments might soon be due. Lastly, business owners are advised to craft an operating agreement that, while not required by state laws, will help outline the business’ ownership and operating procedures.