The following are answers to some frequently asked questions on Florida Limited Liability Companies. This information is not intended to provide legal advice for any specific situation, and you should call your own attorney or Tucker & Lokeinsky, P.A. for questions or application of this information.
What are limited liability companies (“LLCs”)?
LLCs are hybrid legal entities which combine the best feature of a corporation, limited liability, with the best feature of a partnership, which is that partnerships are pass through entities for income tax purposes, avoiding the double tax at the corporate and then personal level.
Why are we hearing so much about LLCs in Florida right now?
LLCs have been subject to Florida’s 5.5% corporation tax, while Sub-Chapter S corporations have been exempt from the tax, until the law was changed effective July 1, 1998. Now, with the tax change, and a change allowing one member LLCs, LLCs are a more viable option for Florida businesses.
What are the IRS’s “check the box” regulations?
LLCs have been used nationally for the last decade. However, prior to 1997, LLCs would only be considered partnerships (i.e. pass-through entities) for IRS tax purposes if the IRS determined that the LLC was sufficiently similar to a partnership. Thus, prior to 1997, the IRS would look at an LLC and tell the LLC whether it would or would not get the tax benefits. Starting in 1997, the opposite approach was taken. Now, an LLC is either automatically taxed as a partnership, or it can “check the box” on a form to tell the IRS what tax treatment it wants.
Are LLCs better than my “S” corporation?
This depends on your needs. LLCs offer the following advantages:
•Different kinds of ownership interests (i.e. in an LLC, you can have a “preferred stock” type ownership class, whereas in a “S” corporation, you cannot)
•Foreign investors allowed, which can be important in South Florida
•No maximum number on investors (with “S” corporations, the maximum number is 75)
Are there any drawbacks to LLCs?
The filing fee for a Florida LLC is $125, versus $70 for the filing fee and corporate book for a corporation. Also, in the short term, LLCs may be a little more expensive to operate. The creation and operation of corporations has become inexpensive because of standardization and the fine-tuning of corporate law. Some Florida lenders and title insurance companies may have questions because of their inexperience in dealing with LLCs.
If I am a sole proprietorship, should I convert to an LLC?
It depends. For service businesses, it is a good idea to obtain the liability limitation. However, for asset-rich businesses, such as owners of real estate, the yearly Florida intangible tax which applies to stock also applies to LLC interests, which tax is .2% of the value of the stock on an annual basis. This tax does not apply to sole proprietorships or partnerships.
When are LLCs always a good idea?
LLCs will almost always be a better choice than using a general partnership or a joint venture agreement, because LLCs bring a limitation of liability. The only question will be measuring what the intangible tax on the LLC interest will be (see question above) compared to the value of the limitation of liability which is being obtained.
This FAQ List is provided to you by Tucker & Lokeinsky, P.A., a Martindale-Hubbell “AV” Rated Law Firm serving the South Florida business and real estate development community. Please contact the firm if we can be of service to you for your business and corporate needs.
Important Note: This article is for general information only and is not intended to give any specific legal advice or opinion which should be sought from an attorney. The facts of any particular situation need to be examined before deciding on a legal course of action.