Florida Business Litigation and Limited Liability Companies – A Primer on LLCs

Posted on: May 29, 2012

One of the reasons that people choose to conduct business through a corporate entity is the limited liability that corporations provide to their members, officers, or shareholders. Traditional business entities such as partnerships and sole proprietorships potentially expose their members to unlimited liability for the debts incurred by the corporation; in both cases the partners  or the proprietor are both liable for all the debts of the business. In contrast, Corporations are generally treated as a separate legal person, which is solely responsible for the debts it incurs and is the sole beneficiary of the credit it owed.

A relatively new form of corporate entity is the limited liability company, which blends elements of a partnership (which provides no limitation of liability) and more traditional corporate structures (providing limited liability for its members.) Under Florida law, a manager or managing member of an LLC is not liable for the LLC’s debts unless the manager or member violates Florida criminal law, derives improper personal benefit (self-dealing), makes an improper distribution of assets under the terms of the operating agreement, or acts with intent in a reckless manner resulting in harm to the company or someone personally. The statute regarding the limitation of liability for LLC members or managers can be found here.

In order to form an LLC, articles of incorporation must be filed with the Department of State by one or more members or authorized representatives of the LLC. The articles must include the LLC’s name (which must comply with Florida law), the mailing address and street address of the LLC’s office, the name and address of the LLC’s registered agent for service of process. In Florida, the members of a LLC may enter into an operating agreement, which may be written or oral, to “regulate the affairs of the limited liability company and the conduct of its business, establish duties in addition to those set forth in this chapter, and to govern relations among the members, managers, and company.” In the absence of an operating agreement, Florida has default rules in Title XXXVI Chapter 608 that govern LLC operations.

Generally, LLC’s provide many advantages over more traditional corporate forms. An LLC is eligible for “pass-through taxation;” the income of the entity is treated as the income of its members or managers. Also, there is much less administrative paperwork and record keeping than a traditional corporation. Also, an LLC may be set up by an individual, which provides individuals who are self-employed with a liability shield for any mishaps that may occur on the job.

If you are currently working for yourself and have not filed any paperwork with the State, you may be acting as a sole proprietor and not even been aware of it. As stated above, without a corporate structure you are potentially exposing yourself to unlimited liability for any debts incurred (including judgments from lawsuits) in the course of your business. At Schecter Law, we have a dedicated team of Florida business litigation lawyers who are specialists in corporate formation and limiting our clients’ exposure to personal liability. For a free consultation and to get started on forming your Florida business entity today,call us now at 954-779-7009.