Florida offers many types of business entities that can limit the liability of its principals. The three main types of business entities are partnerships, corporations and limited liability companies.
A General Partnership is an unincorporated business owned by two or more persons who share assets and liabilities. To limit liability, owners may choose to enter into a limited liability partnership, a limited partnership, or a limited liability limited partnership.
A Limited Liability Partnership (“LLP”) is a general partnership in which the partners have no liability, as partners, for certain debts and obligations of the partnership, whether arising in contract, tort or otherwise. To qualify as an LLP, it is necessary to file a Statement of Qualifications with the Florida Secretary of State. However, every year the LLP must file an annual report or its status will be revoked. If the annual report is not filed, each general partner is jointly and severally responsible for all liabilities arising after the LLP status is revoked.
A Limited Partnership (“LP”) has at least one (1) general partner who manages the partnership and is generally liable for the debts of the partnership. The limited partners have limited control over the management and operation of the partnership and are not usually responsible for the obligations of the partnership.
A Limited Liability Limited Partnership (“LLLP”) is a limited partnership in which the general partner is no longer personally liable for the acts of the limited partnership. The general partner of an LLLP is protected by statute from liability for the acts of the limited partnership and does not expose himself to individual liability. Like the LLP mentioned above, every year the LLLP must file an annual report or its status will be revoked. If the annual report is not filed, each general partner is jointly and severally responsible for all liabilities arising after the LLLP status is revoked.
All partnerships should have a written partnership agreement clearly defining the terms of the partnership.
Corporations are formed by filing Articles of Incorporation with the Florida Secretary of State. The corporation is a new entity that is separate from its owners, which are called shareholders. Shareholders have no personal liability for liabilities that arise in the ordinary course of business and can limit their liability to their ownership of the corporation. Corporations can be taxed as “C” Corporations or “S” Corporations. “C” Corporations have the potential to allow “double taxation” whereas S corporations allow “flow-through” taxation. However, “S” Corporations have several restrictions, including a limitation that only US citizens and resident aliens may be shareholders.
All corporations are required to maintain a corporate book which includes its bylaws, minutes and corporate stocks. Additionally, if there is more than one shareholder, there should be a shareholder’s agreement. Laws usually set out the powers, duties, rights, and obligations of the directors and officers and other matters related to the corporation as a whole. A shareholders’ agreement is an agreement between the stockholders of a corporation that governs the rights and obligations of the shareholders.
The limited liability company (“LLC”) is an entity that blends the partnership and corporation. Like corporations, the principals, called members, limit their liability to their ownership in the company. However, members can choose whether to be taxed as a partnership or a corporation. Unlike an S corporation, non-resident aliens may be members of LLC’s.
LLC’s are formed by filing Articles of Organization with the Florida Secretary of State. LLC’s should maintain a company book, which includes its operating agreement (also known as regulations which are similar to the bylaws of a corporation), minutes and membership certificates (which are identical to the stock certificates of a corporation). Additionally, if there is more than one member, there should be a membership agreement, which would be similar to the shareholder agreement mentioned above.
When forming a Florida entity, it is essential to discuss tax issues with an accountant.