For Florida LLC prices and State fees, please visit the costs page for forming an LLC in Florida.
Electing to form your Limited Liability Company (“LLC”) in Florida can be advantageous to your business because of the pro-business regulatory environment, stable taxation, and relatively stable economy. Besides having a stable economy, there are many government incentives to encourage you to conduct business and incorporate or form your LLC in Florida. Some examples include targeted qualified industry tax refunds to special zones and sites that eliminate state and local taxes to encourage development. Further, a Florida LLC can be a beneficial formation option for your company if you intend to have multiple members and are looking for partnership-type taxation and management qualities, with corporation-like limited liability. The best of both worlds! As the name implies, a Limited Liability Company offers members limited liability protection from debts and lawsuits, and the option of favorable taxation options such as pass-through taxation (as a partnership). While there are a number of factors that must be considered before deciding that Florida is the state best suited for your LLC, if these factors are applicable to you and your business, then incorporating in Florida can offer a substantial advantage to you and your company.
Factors to Consider
Deciding to form your LLC in Florida should be based on certain determining factors. Chief among these is whether or not you intend to physically locate your business in Florida--while there are many advantages available in Florida for services and products produced locally but exported, careful consideration to franchise taxation, the business goals for your company, where you intend to conduct the business, and where you intend to bank and establish financial/credit footholds. While allowed, forming your LLC in a foreign state and doing business in Florida requires the corporation to formally qualify to do business as a “foreign corporation" in Florida, along with the commensurate duplicitous out of state registered agent fees. These additional fees and annual filings cost money (about the same amount that incorporating in the state would cost anyway), and would expose the company to late penalties if annual reports are filed late. This is a special consideration because if the company is complying in other states, the Florida requirement may be accidentally overlooked and the fees would be incurred (not to mention the lapse in the corporate protection in the state--a potential “piercing of the corporate veil”). However, your LLC can be based in anywhere else but still organized as a Florida LLC, providing your company access to the many benefits of being a Florida LLC.
Establishing your LLC in Florida will afford your company the flexibility to add members, benefit from decreased taxation (by avoiding the “double taxation pitfall” of a standard corporation), and will give your company unparalleled flexibility with respect to how it is organized, how distributions are handled, and how it is run. In effect, your business can reap the benefits and flexibility of a partnership while enjoying the same protections from liability and debt that a corporation provides.
In addition to the limited liability protection, there are also substantial tax benefits to be garnered from the formation of an LLC. The LLC has the “check box method” of taxation available to it, wherein it can choose to be taxed as a “standard” corporation, with the LLC being taxed at the company level, then the members for individual distributions. Or, the LLC can elect to be taxed as a partnership, with “pass through” taxation, with no tax at the LLC level (with the exception of the franchise fee). This garners great flexibility with respect to business and taxation strategies, and can amount to a substantial savings.
Once the election to form an LLC is made, it is imperative that a well-written Operating Agreement be drafted that specifically outlines the distribution methods, rights and benefits of members and the managing member, capitalization, and any other rights, duties, assignments and responsibilities necessary for the proper operation of the LLC. The Operating Agreement can be compared to the bylaws of a corporation, wherein a properly written one, and strict adherence to it, helps to ensure the “corporate veil” protection of the LLC.
Another often-cited benefit of an LLC is that it is not subject to the same, stringent corporate formalities that a C or S corporation is subject to. It can be simpler to establish and run an LLC, provided that a quality, well written Operating Agreement is in place.
A Florida LLC allows for as few as one member or as many members as your company is willing to have, with no limitations on numbers, and no limitations with respect to types of stock. The company must select a managing member who is typically the figure head of the organization and is responsible for it’s management. The profits or losses of the business organization pass directly through to the Member's personal income tax return (“pass through taxation”), with no taxation at the LLC level. The net profit of the LLC is not considered to be income earned by the Members (though it can be for the Managing Member as a special “fringe benefit” treatment--see below), and thus is not subject to self-employment tax.
Advantages and Benefits of Forming a Florida LLC
- Florida LLC members enjoy Limited Liability, which means they are mostly personally protected from any liability of the LLC and successful judgments, as well as from the LLC itself.
- A Florida LLC allows for “multi-tiered” ownership wherein an S or C corporation can be a member--this can allow for substantial tax benefits, and increased liability protection.
- Florida allows for “single member” LLCs.
- The LLC allows for the "special allocation" of profits--the disproportionate splitting of Member profits and losses (in different percentages than their respective percentages of ownership). This means that Members can enjoy the benefits of receiving profits (and writing off losses) in excess of their individual ownership percentage, so long as it is clearly delineated in the Operating Agreement.
- Managing Members' share of net profit is considered earned income because the Managing Member is considered to be an active owner--therefore qualifying the Managing Member for special "fringe benefit" treatment.
- The Members' share of the bottom-line (“net”) profit of an LLC is not considered earned income, and therefore is not subject to self-employment tax.
- Members are compensated using either distributions of profit or guaranteed payments. A distribution of profit allows each member to pay themselves by merely writing checks--whenever they need the money (provided the business has the available cash). Guaranteed payments represent earned income to the members, thereby qualifying them to enjoy the benefits of tax-favored “fringe benefits.”
- The Managing Member of an LLC can deduct 100% of the health insurance premiums he or she pays, up to the extent of their pro-rata share of the LLC's net profit, because the profit is considered earned income. Note: If a member has earned income, he or she will also qualify.
- Membership Flexibility--many entities, such as a Corporation or a trust, can be a member of an LLC. This allows you to create an additional level of ownership, which is designed to create an entity that can offer such traditional “fringe benefits” as retirement plans and an additional level of protection from liability.
- As a Member, you can contribute capital or other assets to the LLC, or loan the LLC money to put dollars or value into the business. You can take dollars out by taking a repayment of your loan (plus interest), a distribution of profit or a guaranteed payment. If any of the members die, the LLC can continue to exist--subject to the unanimous positive vote on the part of all remaining members or a proviso in the Operating Agreement.
- Tax Advantages. Because of the “check box” taxation election flexibility, you can tailor your LLC’s taxation method to best suit your goals and strategies, weighing the various options and electing the method that allows your LLC to retain the largest share of its net profits.
- Capital Flexibility. Florida has no minimum initial capital requirement. While it is important that sufficient operating capital be present in order to provide for the safe operation of the corporation (and in order to maintain the corporate formalities), the lack of an initial capital requirement can go a long way in assisting your start-up company.
- Business-Friendly Courts. Florida has a renown, quality, impartial Court system. Florida courts are well-versed in corporate issues.
- Business Friendly Environment. Florida’s business-minded judicial, executive, and legislative branches of government are becoming more friendly to corporations, and more and more knowledgeable about how corporations transact and interact everyday. The annual fees for forming and maintaining a Florida LLC already compare very favorably with other states, and have seen double-digit reductions in recent years
- Confidentiality. Florida does not disclose, nor keep records of, members, managing members, etc., though Florida does outline specific record-keeping requirements of an LLC, listing management and members.
Florida also offers beneficial tax incentives; there is no personal income tax, subchapter S corporations are allowed (for pass-through taxation benefits), and there is no corporate franchise tax on capital stock, no state-level property tax assessment, no property tax on business inventories, and no sales and use tax on goods manufactured or produced in Florida for export outside the state.
Florida LLC Fees and Costs
Aside from the initial filing fee, there is only a $50 yearly Franchise fee requirement for a Florida LLC
If a judgment is awarded against the LLC itself, it may be levied, and LLC’s property seized or sold in payment, much in the same manner that a corporation would be treated. Conversely, if a judgment is awarded against a particular member, and with a properly written operating agreement stating as such, distribution usually cannot be compelled to satisfy a member’s judgment debt (this is why it is critical to have a well crafted operating agreement, you’re your protection be mitigated). Creditors or judgment debtors have to satisfy themselves with a “Charging Order” that grants them rights to distributions made by an LLC to a particular member named in the judgment. This gives them the rights to that distribution, but does not affect the rights, assets, or distributions of other members or of the LLC as a whole. These types of protections characterize the attraction to LLCs by potential investors
It should be apparent that forming your LLC in Florida offers substantial benefits in the sought after areas of limited liability, confidentiality, flexibility of management, and taxation, all in a friendly, sunny business environment. Forming your LLC in Florida will make your Florida-based company more credible, and would be an excellent way to attract investors all the while safeguarding shareholders’ personal assets from liability. With a diligent implementation and business development strategy, you can build your business into a highly competitive, investment-attracting entity.