8 benefits of forming an LLC in Florida
7/11/2022
Are you a small business owner thinking of forming an LLC in Florida? Read through our article to learn all about the benefits and drawbacks of doing so.
One of the most important decisions small business owners will make is choosing a business structure they wish to operate under. From sole proprietorships, partnerships, S and C corporations, and limited liability companies, the business structure you choose will not only influence how you conduct your daily operations, but it will also determine how you file your income tax returns with the IRS, what type of tax advantages you are eligible for, and whether you have personal liability protection.
Many entrepreneurs in the state of Florida choose to form an LLC or limited liability company, as it offers numerous benefits. If you have a new business in Florida and are considering whether it is worth it or not to start an LLC, read on for more information.
A complete list of Florida LLC benefits
Before launching your Florida business, take note of the following benefits of forming an LLC in your state¹:
1. Limited liability protection for your personal assets
Unlike operating as a sole proprietor, a limited liability company offers liability protection to business owners. This means that your personal assets, such as your home, vehicle, and any other equity you have are protected and separate from your business entity. This asset protection ensures that you will not pay out of pocket in the event that your business is sued by a third party or goes bankrupt.
2. Pass-through taxation
Similar to sole proprietorships, the benefits of an LLC include default pass-through taxation. This means that all of the revenue your business makes will be filed under your individual tax return and is subject to income tax and self-employment taxes based on your individual tax bracket. If you were to form an S or C corporation, you would be subject to what is known as “double taxation” under federal tax laws. In other words, as a small business owner, your business profits are taxed using a corporate tax rate before distribution to you and any of your other business owners. In addition, they are also taxed again through your individual tax returns with the IRS. Pass-through taxation avoids this double taxation, though you may elect to be taxed as an S corporation if it better suits your business.
3. Simple formation process
LLC formation is very straightforward, if you choose to use LLC formation services. All you need to do is:
- Choose your business name
- Partner with a registered agent
- File your articles of organization
- File an LLC operating agreement if you have more than one owner
- Wait for your incorporation confirmation
- Obtain an employer identification number
- Open up a business bank account
If you do choose to use LLC formation services, most of these steps will be taken care of for you through the company that is filing your LLC.
4. Affordable filing fees
When filing your articles of organization in Florida, you will only have to pay a one-time filing fee of $125.
5. Numerous tax options
Another Florida LLC benefit is the ability to choose between several tax options. These include:
- A disregarded entity is the default designation for a single-member LLC that does not opt for another tax designation.
- A partnership for multi-member LLCs.
- A corporation, if you want to be taxed for corporate business tax which provides certain advantages, such as the ability to write off select expenses.
6. Increases the credibility of your Florida business
Forming an LLC in the state of Florida, regardless of the type of business you operate, can provide you with credibility amongst your competitors. Consumers are more likely to choose a business they can trust, and vendors are more likely to work with credible businesses. As a limited liability company, you will appear more professional and legitimate to others with an LLC designation, which is more difficult to achieve as a sole proprietor.
7. Business name protection
In the state of Florida, business owners have the option of registering their name under Florida law. This means that only you have the rights to your business name and no other business can operate under the same one. Unlike sole proprietorships and partnerships that need to operate under the names of their owners, a limited liability company can be any name that you want, which provides you with the opportunity to be creative and choose something that matches the type of business you run.
8. Flexible ownership for your LLC
Another benefit of starting an LLC in Florida is that the state government does not have many restrictions on how business owners can structure their business. Thus, entrepreneurs are able to form an LLC as a:
- Single-member LLC
- Multi-member LLC that is managed by a number of members.
- Multi-member LLC that is managed by a manager that has been appointed by the owners of your LLC.
As you can see, there are numerous benefits of forming an LLC in Florida, which is why so many new business owners choose to go this route rather than electing another business structure.
Drawbacks of starting an LLC in Florida
While there are many benefits to starting an LLC in Florida, there are also some drawbacks to LLCs that new business owners should keep in mind. Here is a closer look at some of these drawbacks:
1. It’s more expensive to form than proprietorships and partnerships
Unlike other business structures, LLC formation in Florida comes with more annual fees. One of these fees is an annual report that must be filed by May 1st each year. Your annual report cost will be $138.75 each year. Late filing fees can cost you over $500. For registered agent services, you will also need to pay a fee throughout the year depending on which law firm or business you work with to accept legal documents on your behalf.
2. Ownership transfer is more difficult
Another drawback to forming an LLC in Florida is that transferring business ownership can be difficult. Ownership details must be laid out in your operating agreement if you have a multi-member LLC, otherwise, you will need consent from all members before transferring the business to another person, which may cause conflict between you and your business owners.
3. There is limited case law
A limited liability company is a newer invention than corporations and partnerships. As such, there is less legal precedent in the court systems to look at should a legal dispute arise. Therefore, in the event that you do get sued by a third party, outcomes are more unpredictable as there are fewer rulings to guide the legal process. This is one reason why many business owners elect to form their LLCs in Delaware, where there happens to be excellent business laws with many legal precedents already established.
Starting an LLC in Florida vs. other states
Starting an LLC in Florida is much like starting an LLC in any other state. Here is a closer look at the steps you need to take to form an LLC in Florida:
1. Choose your business name.
2. Partner with a registered agent who can accept legal documents on your behalf.
3. File your articles of organization with the Secretary of State’s Office.
4. File an LLC operating agreement if you have more than one owner.
5. Wait for your incorporation confirmation.
6. Obtain an employer identification number.
7. Open up a business bank account.
The only differences between starting an LLC in Florida vs. other states are the costs to file your articles of organization and the date of when you will need to file your annual report.
Frequently asked questions
Still have questions about starting an LLC in Florida? Take a look through some of our most frequently asked questions for more information.
Is Florida a good state for LLCs?
Yes, Florida is a good state to establish your LLC in. Some of the benefits include:
- Protection of your personal assets
- Pass-through taxation
- A simple formation process
- Affordable filing fee
- The ability to enhance your business credibility
- Flexible LLC ownership options
- The ability to choose how you would like to be taxed
- The option to register your business name so no one else is able to operate under the same one
Do LLCs pay taxes in Florida?
Florida is one of the only states that does not have income tax for individuals. This means that members of an LLC will not need to pay an income tax on the profits made from their business. However, businesses may need to pay:
- Sales tax
- Employment tax
- Corporate tax
This will depend on how you choose to be taxed when you first establish your LLC in the state.
What are the requirements to form an LLC in Florida?
The requirements of forming an LLC in Florida include:
- Choosing a business name
- Choosing a registered agent
- Filing articles of organization
- Creating an operating agreement
- Obtaining a certification from the state
- Obtaining an employer identification number (similar to a social security number for your business)
- Registering for a business license
- Opening a business bank account
How long does it take to get an LLC in Florida?
LLC approval times can vary depending on how you choose to file your legal documents, if you go with mail-in filing it could be 3 to 4 weeks, while online filing could only be 1 to 2 business days.
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