Form an LLC Online in Florida
Why form an LLC?
A limited liability company (often called an LLC) is a hybrid form of business entity recognized by all 50 of the United States. The LLC provides beneficial characteristics of a corporation and a partnership. Corporations are recognized for providing limited liability to its owners (its stockholders), while partnerships are recognized for providing pass-through or single taxation to its owners (its partners) (unlike the double taxation that exists with a corporation). The LLC is special in that it is a flexible business entity type that provides limited liability protections to its owners (its “members”), like a corporation, and pass-through taxation (or single taxation), like a partnership.
Terminology used with LLCs differs significantly from that used with corporations and partnerships, however, concepts are very similar. For example:
- A “Member” of an LLC is an owner of the LLC, similar to that of a stockholder of a corporation or a partner of a partnership. A member of an LLC may be an individual, a corporation, a trust, a partnership or another LLC. A member’s liability with respect to an LLC is generally limited to the amount of capital invested in the LLC by such member (this is the “limited liability” that makes an LLC quite attractive to many business owners).
- A “Membership Interest” is a Member’s ownership interest in the LLC (much like a stockholder’s interest in a corporation, which is called shares or stock).
- An LLC may be managed by a “Manager” or its members. In comparison, a corporation is managed by its Board of Directors, and operated by its officers. The LLC’s operating agreement will describe if the LLC is “manager-managed” or “member-managed.”
- “Articles of Organization” or “Certificate of Formation” is the legal document that is filed with the Secretary of State of the state of formation to create the LLC.
- An “Operating Agreement” is a contract entered into between the LLC’s members to determine and explain the rights of the members, the responsibilities of the managers, tax allocations and distributions and other important issues affecting the members. This document typically remains confidential and is not filed with the Secretary of State’s office. An Operating Agreement typically includes concepts that might be found in the Articles of Incorporation, bylaws and similar documents often used with corporations.
Generally speaking, a corporation is a “creature of statute” while an LLC is a “creature of contract.” Most LLC statutes include the following language (or similar): “unless otherwise provided in the Company’s operating agreement.” This language provides the flexibility that is attractive to many business owners. It allows the business owners (members) to determine the workings of their entity, while corporations are heavily governed by well-established statutes that allow for little flexibility.