Florida LLC
Advantages and Disadvantages
Florida LLC Advantanges and Disadvantages
The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.
The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC's must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.
Advantages and Disadvantages of a Florida LLC
LLC Advantages Disadvantages
LLC AdvantagesA limited liability company (LLC) has many advantages as a form of business entity:
- Pass through taxation - under the default tax classification, profits taxed at the member level, not at the LLC level - no double taxation.
- Limited liability - the members (owners) of the LLC, are protected from liability for acts and debts of the LLC.
- An LLC can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing the correct option for your business.
- Can be set up with just one natural person involved or, in some states, one owner which may be an business itself.
- No requirement of an annual general meeting for shareholders (in some states, such as Tennessee and Minnesota, this statement is not correct).
- No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board).
- LLCs are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death.
- Much less administrative work and recordkeeping.
- Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest.
LLC Disadvantages
- Earnings of most members of an LLC are generally subject to self-employment tax. By contrast, earnings of an S corporation, after paying a salary to the shareholders working in the LLC, can be passed through as distributions of profits and are not subject to self-employment taxes.
- Since an LLC is considered a partnership for Federal income tax purposes, if 50% or more of the capital and profit interests are sold or exchanged within a 12-month period, the LLC will terminate for federal tax purposes.
- If more than 35% of losses can be allocated to nonmanagers, the LLC may lose its ability to use the cash method of accounting.
- An LLC which is treated as a partnership cannot take advantage of incentive stock options, engage in tax-free reorganizations, or issue Section 1244 stock.
- There is a lack of uniformity among LLC statutes. Businesses that operate in more than one state may not receive consistent treatment.
- In order to be treated as a partnership, an LLC must have at least two members. An S corp can have one shareholder. Although all states allow single member LLCs, the business is not permitted to elect partnership classification for federal tax purposes. The business files Schedule C as a sole proprietor unless it elects to file as a corporation.
- Some states do not tax partnerships but do tax LLCs.
- Minority discounts for estate planning purposes may be lower in a limited liability company than a corporation. Since LLCs are easier to dissolve, there is greater access to the business assets. Some experts believe that LLC discounts may only be 15% compared to 25% to 40% for a closely-held corporation.
- Conversion of an existing business to LLC status could result in tax recognition on appreciated assets
By Florida and other state law in order to proceed with forming a llc, you need to prepare a written abstract detailing your llc purpose, the names of your initial Florida LLC members, the name and address of your Florida registered agent, the details of which will be introduced into the body of your LLC operating agreement and related Florida LLC formation documents assembled for application to the state of Florida.
Florida's 2009 Business Tax Climate Ranks 5th Florida ranks 5th in the Nation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states ranked as follows: Georgia (27th) and Alabama (21st).
Florida Levies No Individual Income Tax Florida is among seven states in the country that collect no individual income taxes. Since most small businesses are either S Corporations or partnerships or sole proprietorships, they pay their business taxes at the rates for individuals. This makes the tax environment for small businesses in Florida very competitive compared to other states.
Florida's Corporate Income Tax SystemFlorida's corporate tax structure consists of a flat rate of 5.5 percent on all corporate income, which ranks 40th highest among states that tax corporate income. In 2007, state-level corporate tax collections (excluding local taxes) were $135 per capita and ranked 31st highest nationally.
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