Estate planning and business law attorneys often advise their clients to form a limited liability company (LLC). An LLC provides flexibility and another level of asset preservation for the LLC’s owners/members. There are usually at least six steps to properly establish a new LLC. If you engage our law firm to help you establish an LLC, these are the steps we will take or advise you to take so your LLC is ready for prime time.
1. Choose a Unique Business Name
Choosing a name—the first, seemingly simple, step to setting up an LLC—is crucial for the LLC to take advantage of the legal protections offered to this type of business entity. An LLC’s legal name must be used on its formation document, which in Florida is called the Articles of Organization.
Let’s assume for our discussion that Jack and Jane are two prospective members of the LLC. Jack and Jane want to call their business “Jane’s Perfect Pancakes,” because Jane is an experienced and locally known cook. First, we check with the Florida Secretary of State to make sure the preferred name has not been taken. This must be done for practical and legal reasons to avoid market confusion. We will confirm the name selected complies with Florida’s rules that require the name to include “limited liability company,” “LLC,” or “Limited,” to give public notice of the business’ legal structure. (Protecting the business name under federal law so the name may only be used by the LLC is a separate discussion that is not within the scope of this article. Jack and Jane should discuss how their business name may be protected with their attorney.)
2. Select a Registered Agent
The next step is to select a registered agent who must be available to receive official communications for the LLC from the Florida Secretary of State and receive service of judicial process. Although the registered agent could be a third party hired by Jack and Jane to fill that role, either Jane or Jack may act as the LLC’s registered agent to avoid having to pay a third party. The registered agent must be trustworthy, be attentive to detail, and be available during the times required to receive documentation on behalf of the LLC. The registered agent receives mail and service of process at a specified physical address stated on the Florida Secretary of State’s records. Post office boxes are not an acceptable address for a registered agent. The registered agent must be physically present in Florida to receive judicial service of process.
3. Prepare & File the LLC’s Articles of Organization
One of the most important steps in establishing an LLC is filing the business’ articles of organization with the Florida Secretary of State. The Articles of Organization are part of public records and include the name of the LLC, the name and address of the registered agent, and the purpose of the LLC’s business.
Some states, including Florida, do not require the names of the LLC members to be included in the Articles of Organization; however, Florida requires the name of its manager to be stated. If Jack and Jane want to maintain privacy, they may choose a third party to act as their registered agent.
4. Obtain a Tax Identification Number
On behalf of Jack and Jane, we would prepare an application for Taxpayer Identification Number (TIN) and file it with the Internal Revenue Service (IRS) to obtain a TIN for the LLC. The TIN allows the IRS to link the identity of the responsible party to the LLC for income-tax purposes; and the LLC’s bank requires the TIN to open a business checking account.
5. Open a Business Checking Account
After receiving their TIN and documentation from the Florida Secretary of State showing their LLC is active, Jack and Jane will open at least one business checking account separate from their personal bank accounts. This will enable Jack and Jane to keep their personal and business finances separate, which is important for recordkeeping and the overall success of the business. Commingling business and personal assets is one factor that could result in an LLC losing its limited liability status. A litigant could be able to pierce the liability protection afforded to the LLC if it does not operate separate from its member’s personal activities. If this happens, Jack and Jane would be personally liable for claims against the business.
6. Draft the Operating Agreement
Drafting the LLC’s Operating Agreement is a job for the LLC’s attorney. In Florida, the LLC’s Operating Agreement is not filed or recorded for public viewing. The LLC’s Operating Agreement is the LLC’s “constitution” of the business. The LLC’s attorney will meet with Jack and Jane before drafting the document to ensure it addresses the specific needs of their business. In Florida, if the LLC does not have an Operating Agreement, the LLC, its managers, and its members will be governed by Florida law—which is most likely not in the LLC’s or the members’ best interests.
After the above is completed, Jack and Jane must keep the LLC in good standing. Florida requires annual reports be filed with the Secretary of State with the payment of an annual report fee. If the annual report and fee are not timely filed and paid to the Florida Secretary of State, the LLC will be administratively dissolved. Staying on top of the Florida reporting requirements will protect the status of the LLC.
Starting in 2024, there will be a new reporting requirement for many LLCs under the federal Corporate Transparency Act. LLCs that fall within the definition of a “reporting company” must provide information about the LLC and its owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.
Properly establishing an LLC is more involved than merely filing Articles of Organization with the Secretary of State. Contact Stross Law Firm at (813) 852-6500 to talk with an attorney about your business planning needs, including establishing an LLC for your start up business, expanding your business, or making a business investment where an LLC may be involved.