Florida LLC
Advantages and Disadvantages



Florida LLC Advantages and Disadvantages




Florida LLC advantages and disadvantages - An Florida LLC offers business entrepreneurs the form of corporate organization that provides perhaps the most flexibility to you. An LLC formation, like the alternative corporate forms of organization like alimited partnership or a Subchapter S Corporation, are generally prime candidates for a business juststarting. The state of Florida gives public support to an Florida LLC.

Florida LLC Advantages and Disadvantages

Should I form a Florida LLC?

A limited liability company that is classified as a corporation for Florida and federal tax purposes is subject to the Florida
Income Tax Code and must file a Florida corporate income tax return.

A limited liability company that is classified as a partnership for Florida and federal income tax purposes is required to file Form F-1065 if one or more of its owners is a corporation. In addition, the corporate owner of a limited liability company that is classified as a partnership for Florida and federal income tax purposes must file a Florida corporate income tax return.

A single member limited liability company that is disregarded for Florida and federal tax purposes is not required to file a separate Florida corporate income tax return. However, the income of the company is not exempt from tax if it is owned by a corporation, whether directly or indirectly. In this case, the corporation is required to file Form F-1120 reporting its own income, together with the income of the single member limited liability company.

A Florida LLC satisfies a necessary condition of your business planning developement in that it meets the requirement that you establish a legal form of organization in order to gain the statutory benefits and protection available in Florida to your LLC. Your Florida LLC establishes a legal presence within the state, which you can use either as a platform for in-state operations or by registering your Florida LLC via your agent's physical address in order to meet the purely statutory requirement for tax and filing purposes absent an in state operation.


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.


Florida LLC Advantages and Disadvantages

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



Florida's 2012 Business Tax Climate Ranks 5th

Florida ranks 5th in the Tax Foundation'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.

Tax Freedom Day Arrives on April 11 in Florida

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2011, Florida taxpayers work until April 11 to pay their total tax bill, ranking it 16th highest in the nation. That's one day earlier than national Tax Freedom Day (April 12).

Florida's State and Local Tax Burden Below National Average

Florida's 2009 state and local tax burden of 9.2% of income is below the national average of 9.8%. Florida's tax burden has increased overall from 9.0% (37th nationally) in 1977 to 9.2% (31st nationally) in 2009. Floridians pay $3,897 per capita in state and local taxes.

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.

Reference - Tax Foundation

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