Changes Are Coming to the Florida LLC

Since its creation, the law governing Florida’s limited liability corporations (LLC) hasn’t changed much… until now. With debating business attorneys and numerous court challenges—some successful, some not—a tune up was needed. So the Florida Legislature made changes based largely on the revised Uniform LLC Act template, making multistate (and international) uses of the entity much easier.Fundamentally, the LLC carries the legal protection for the owners (called “members”) enjoyed by shareholders of a corporation with the flexibility of either an unincorporated individual or a partnership.Thus, a single-member LLC can be disregarded for income tax purposes. A multimember LLC is taxed as a partnership by default, or it can make a federal election to be taxed as a C or S corporation. These elections offer the legal protection of an LLC and the tax benefits of a corporation. The choices (C or S) are not quite as simple as they seem, as pros and cons exist for each option.Our purpose here is to highlight the changes that take effect for newly formed LLC's after January 1, 2014 and for all LLC's (regardless when formed) operating in Florida beginning January 1, 2015. Many of the changes are technical points that most entities will never see, but here are some that would commonly apply:

1. A special interest can now be sold in an LLC without the buyer being a member.
2. A non-resident alien individual or company can become a member of an LLC if it’s registered to do business inFlorida.
3. There are now default and judicial provisions for dissolution of an LLC, which had previously been a challenge.
4. The status of “Managing Member” will no longer exist. You will now either be a member or a manager, so all LLC's will either be member-managed or manager-managed; thus, a non-member can officially be a manager.
5. Numerous provisions were added that specify what can and cannot be included in an operating agreement. Forming an LLC without an Operating Agreement (in lieu of the default provided by the Secretary of State) was never wise; now, it’s even less so.

Be advised though, a single-member LLC still doesn’t protect the member from liability inFlorida. Based on the Florida Supreme Court ruling, an LLC must include at least two members to provide that assurance and, even then, the personal actions of the members put them at risk.In light of this Florida law evolution, it’s time to either prepare or amend your agreement to specify how you want your company to operate. In other words, if you don’t update your operating agreement, you run the risk of the new "default provisions" overriding your original intentions.Trust among business partners is admirable, but when situations change, health problems occur or members pass away, what’s written will prevail; plan accordingly.Of course this summary is meant to inform and isn’t sufficient to adequately prepare you for these changes. Discuss your particular situation with your attorney. Patrick & Robinson CPAs is available to assist in the establishment of an LLC or corporation, and we can draw on our professional network to help you find an attorney if you don’t already work with one.  Contact us at Office@CPAsite.com or 904-396-5400.Also, just a quick plug:  if you’re tired of the complex tax code we invite you to participate in our “Income Tax at 100: What Were They Thinking?” campaign. Send us your feedback; we’d love to hear from you!