1. Step-by-Step Guide to Form an LLC
In the United States, a limited liability company (LLC) is a legal entity in which the members are owners and members are not individually responsible for the company’s obligations or liabilities. Limited liability companies (LLCs) are model businesses that combine the advantages of the protection of owners from creditors of a corporation with those of being able to control who is in charge of the LLC much like a partnership or a sole proprietorship.
2. Rules for Naming LLC
While choosing a name for your LLC, the most vital aspect is to make sure that it is legal. In certain instances, the only approach to ensure that your LLC’s name is legal is to exclude forbidden terms and phrases when using required ones. The criteria for naming an LLC vary by state. In Florida, the easiest way to determine if the name you want is available is to do a name search for existing companies on your secretary of state website. Florida Secretary of State Website is found here: Florida Name Search The Company’s name must include the terms “limited liability company” or “LLC” after the name you have chosen for the LLC.
3. Fictitious Name Registration
It’s common for many LLCs to operate under a name that is different from the full name of the LLC to register for a Fictitious Name Registration (typically called a Doing Business As, DBA, or Fictitious Business Name) with your Secretary of State. In Florida, you may file an online application at this link: Florida Fictitious Name Registration
4. Articles of Organization
You must file articles of organization with your state’s corporate filing office, which is usually the Secretary of State, to create your LLC.
Articles of organization are usually completed online and need only a bare minimum of information about who’s managing the LLC. You do not need to disclose the percentage ownership of the member(s) of the LLC. You’ll need the LLC’s name and registered agent’s address, the names and addresses of the Managers or Authorized Representative of the LLC, and the address of the LLC. When you file the papers, you’ll have to pay a filing fee. The fees in most states are low, usually about $150. Florida provides a website where you can go to create your articles of organization at this link: Florida Articles of Organization
5. Registered Agent
A registered agent is simply a person or entity appointed to accept service of process and official mail on your business’s behalf. You can appoint yourself, or in many states, you can appoint your business to be its own registered agent. A registered agent is required for LLCs. If the LLC is sued, the registered agent is served with court papers for the LLC. A physical address of the registered agent is required and it must be a physical address in the state where the LLC is registered. In Florida, appointing your first registered agent requires written authorization from the registered agent to sign the registered agent’s name on the Articles of Organization which requires you to identify the registered agent, and of course, the registered agent has to sign which can be done electronically by you for the registered agent when you file the Articles of Organization. All you need is for the registered agent to acknowledge by email that it is accepting an appointment as a registered agent and grants you authority to sign the Articles of Organization on its behalf.
There are several organizations out there that will act as your registered agent for you if you do not name one of your managers or members as the registered agent. Several companies willing to serve as your registered agent are listed here: Florida Registered Agents.
6. LLC Operating Agreement
If your LLC has more than one member, then you most certainly should enter into an operating agreement that recognizes the rights and responsibilities of the members and who will manage the LLC. If you are the sole member of an LLC, an operating agreement is completely pointless and you do not need one so avoid the expense. An operating agreement is an internal document that sets out how the LLC can function and how it will be managed. Florida does not require an operating agreement for LLCs. If you do not choose to use an operating agreement to run your LLC, then your LLC will operate in accordance with the provisions of Florida’s Revised Limited Liability Companies Act. That Act is located in chapter 605 of the Florida Statutes. The state publishes the statute online and it may found here: Florida Revised Limited Liability Act. Bylaws are not required for a limited liability company. In fact, the only real statutory requirement is that you create the LLC with the State. Thereafter, it operates per the statute. Once your articles of organization are approved, then your LLC will be ready to use.
7. Six Crucial Points that LLC Operating Agreement Addresses
Percentage of Ownership/How Profits Will Be Distributed
The Management Structure of The LLC/Members’ Roles and Responsibilities
How and by whom decisions will be made.
What happens If a Member Wants to Leave.
What happens when a member dies. Called succession planning. The point of it is to not force the remaining members to accept the heirs of the deceased member being involved in voting or management of the LLC which they likely have no idea about how it’s run or the way it makes money.
What Happens If You Want To Shut Down and Liquidate The Company
8. Tax & Regulatory Requirements
EIN: Even though the LLC has no workers, it must obtain its own IRS Employer Identification Number (EIN). The EIN can be obtained by filling out an online EIN application on the IRS website at IRS EIN Online Application
S-Election. An S-Election is the document you file with the IRS to cause the LLC to be a disregarded entity for tax purposes. This is also known as a pass-through entity because no taxes are paid by the entity making the s-election. Instead, the profits are considered income to the owners of the LLC, and the S-Election has to have the taxpayer identification number of each owner and their percentage ownership so the IRS knows who to expect taxes from. As of now, the IRS is not taking electronically filed online applications. The form you must submit by mail or fax is located here: IRS S-Election Form Online
9. Company taxes.
Companies have to file a tax return by March 15th of each year so that the owners can receive their tax statement known as a K-1 for use in filing their personal tax returns. If the company does not make the s-election, then the company files a tax form known as 1120 which is published here: Form 1120. If the company does make the s-election, then the company files an 1120s tax return which is published here: Form 1120S.
10. Federal Employment and Payroll Taxes:
Companies with employees also must pay Federal Employment and Payroll Taxes. The IRS publishes guidance with links to the required forms you need to file to establish accounts with the IRS to pay for your company’s Employment and Payroll Taxes. That IRS guide is located at this link: IRS Guide on Employment and Payroll Taxes.
11. State Sales and Reemployment Taxes:
You’ll need to register with the relevant state taxing authority to pay Sales and Use Taxes and Reemployment (formerly known as Unemployment Taxes) Taxes. Said taxes are charged at the state level for Sales and Use Taxes are exclusively state taxes, but Reemployment Taxes are paid at both the state and federal level. Federal Reemployment Tax is known as the Federal Unemployment Tax Act
In Florida, registering to pay Sales and Use Taxes requires the filing of this form: Florida Registration for Sales and Use Taxes. Employers also have to pay a reemployment tax up for each employee. A good guide to all state’s reemployment tax requirements with links to guides for each state may be located here: Guide to all States Reemployment Taxes.
If you are filing for an employer account in Florida for reemployment tax, the application is located here: Application for Reemployment Taxes. The state publishes guidance here: Florida Guidance on Reemployment Taxes.
12. Business Licenses:
Your LLC may require additional local and state business licenses, depending on the form of business and location. Make sure you’re fully enrolled, certified, licensed, and otherwise allowed to do business in your state by contacting the relevant state agencies or an attorney. Never set up a business on your own if it requires licensing because you may not understand the necessary requirements for the qualifier of the business to have and in some instances, it is illegal to operate a business without the appropriate license or certification and could subject you to criminal penalties for operating such a business without the required licensing. For instance, in Florida, you cannot operate a real estate company unless the company has a licensed realtor qualifying the company to do real estate business. It is a felony for a company to run without a licensed professional and the person owning the company can be held criminally liable for doing the same. Most licenses are issued by the Department of Business and Professional Regulation (DBPR). You can find out whether you require a license for many types of businesses with the DBPR by going to its website which is published here: Florida’s DBPR List of Businesses it Licenses.
13. Annual Reports
In many states, LLCs are required to submit an annual report and pay a filing fee. These payments may be substantial in certain states. In Florida, it costs around $150 to file the annual report. The annual report shows any changes in the management of the company or its registered agent. If a change is made to the registered agent, then an acceptance of an appointment signed by the registered agent has to be filed with the Secretary of State to change your registered agent. If an annual report is not filed, then the company will be administratively dissolved. If that happens, then a company may be reinstated usually by paying a much higher fee than the cost of an annual report to reinstate the company. To file an annual report in Florida, you do so by going to the website published by the State of Florida which is here: Florida Annual Report. The State of Florida also publishes a guide to all the filings that an LLC could make which is published here: Florida Guide to All LLC Filings.
LLC FORMATION CHECKLIST
The following is a checklist of the basic information you’ll need to file articles of organization and to prepare an operating agreement if necessary:
NAME AND PHYSICAL ADDRESS OF COMPANY:
MAILING ADDRESS OF COMPANY if different:
FICTITIOUS NAME IF ANY:
DESCRIPTION OF BUSINESS:
INCORPORATOR: NAME, ADDRESS, EMAIL/PHONE #
REGISTERED AGENT (NEED A FLORIDA ADDRESS, CAN BE A MEMBER): NAME, ADDRESS, EMAIL/PHONE#
MANAGERS (RUNS LLC): NAME, ADDRESS, EMAIL/PHONE #, type of duties (president, vice president, treasurer, secretary, etc.)
MEMBERS (OWNERS OF THE LLC): NAME, ADDRESS, EMAIL/PHONE #/ PERCENTAGE OWNERSHIP INTEREST
MEMBER CONTRIBUTIONS (CAPITAL ACCOUNTS): NAME, ADDRESS, EMAIL/PHONE #, AMOUNT OF MONETARY CONTRIBUTION, AMOUNT OF GOODS OR SERVICES PROVIDES, AND ANY SWEAT EQUITY THAT IS BEING CONTRIBUTED TO THE COMPANY.
SOME OTHER CONSIDERATIONS AFTER YOU FORM THE BUSINESS
1. Obtain occupational licenses, a State of Florida license, and Registration if required, and verify that zoning allows you to do what you intend to do in your location or verify that you can legally work out of your home.
You will generally need a county occupational license, although sometimes this is required only if you are in an unincorporated part of the county. If you will be operating in an incorporated portion, you will need a city license as well. Licensing fees are not high, but it is important to comply with whatever regulations exist since a non-licensed business can be shut down by local authorities at any time.
Check on State of Florida Department of Professional and Business Regulation business license requirements for your particular type of business and industry. Their Division of Regulation is the enforcement authority for 36 professions and related businesses regulated by the Department. It monitors those professions and related businesses to ensure that the laws, rules, and standards set by the Legislature are followed. They oversee Accounting Businesses, Alarm Systems, Asbestos Consultants, Asbestos Contractors, Athlete Agents, Auctioneers, Auctioneer Businesses, Barber Shops, Barbers, Building Code Administrators and Inspectors, Child Labor, Crematories, Certified Public Accountants, Construction Contractors, Construction Contracting Businesses, Community Association Managers, Cosmetologists, Cosmetology Salons, Contractors, Direct Disposers, Direct Disposer Establishments, Electrical Contractors, Embalmers, Employee Leasing, Farm Labor, Funeral Directors, Funeral Industry Facilities, Geologists, Geologist Businesses, Landscape Architects, Landscape Architect Businesses, Pilots (Harbor), Surveyors and Mappers, Surveyor and Mapper Businesses, Talent Agencies, Veterinarians, and Veterinarian Establishments.
The State of Florida Department of Agriculture and Consumer Affairs deals with the registration and regulation of numerous businesses. Their Mission Statement describes their job as ensuring the safety and wholesomeness of food and other consumer products; protecting consumers from unfair and deceptive business practices and providing consumer information; assisting Florida’s farmers and agricultural industries with the production and promotion of agricultural products; and conserving and protecting the state’s agricultural and natural resources. A review of their website on July 28, 2005 revealed the following list of business activities under their watch: Aerial Spraying, Aerobics, Agricultural Products, Aldicarb (Temik) Permits, Amusement Rides, Animal Brands, Antifreeze, Aquaculture Facilities and Leases, Aquatic Plants, Auto Repairs, Bakers, Beekeeping, Boll Weevils, Bottled Gas, Bottled Water, Brucellosis Certification, Brake Fluid, Botany, Business Opportunities, Butterflies, Carcass Haulers, Charities, Citrus Budwood, Citrus Sellers, Clams, Concealed Weapons, Convenience Stores, Crop Dusters, Dairy, Dancing, Desserts, Earth Worms, Entomology, Exporting, Fair Rides and Permits, Feed, Fertilizer, Firearms, Fish Farms, Flowers, Food Manufacturers and Processers, Food Stores, Franchising, Fruit Flies, Fruit Shippers, Fuel, Fund Raising, Game Promotion, Garbage Feeding, Gas Appliances, Gas Stations, Grocery Stores, Health Clubs and Studios, Horse Breeders and Horse, Ice, Ice Cream, Insects, Landscaping, Livestock Dealers, LP Gas Marketing, Marks & Brands, Meat, Milk, Milkfat, Tester’s Programs, Motor Vehicle Repairs, Motorcycles, Movers, Mussels, Nematodes, Noxious Weeds, Nurseries, Oil, Organic Farming, Oysters, Pathogens, Pawnshops, Pest Control and Pesticide, Pets, Phone Calls, Pigs, Plant Seeds, Plants, Private Investigator and Investigative Agencies, Propane, Ranching/Horse Raising, Recovery/Repossessors, Recovery Agencies, Shellfish, Seafood, Security Officers, Security Agencies, Spiders, Seed, Super Markets, Telemarketing, Temik (Aldicarb) Permits, Tours and Travel, Trees, Tropical Fish, Veterinarians, Vended Water, Water, and Weeds.
Make sure the work you intend to do is permitted where you intend to do it by your municipal zoning regulations and/or subdivision restrictions especially if you intend to work out of your home on either a part-time or a full-time basis. In addition, if you lease your home, you should check the lease for residential purposes only@ provisions.
2. Employment Discrimination and Other Laws.
Federal and state laws forbid discrimination on the basis of suspect classifications such as age, sex, race, nationality, and disability, in all of the “terms and conditions of employment,” including hiring; compensation; working conditions; and discipline and dismissal. These areas are like the beginning of a minefield. That minefield continues with potentially catastrophic issues like overtime pay.
3. Shop for insurance.
As a business owner, you will need to think about the following types of insurance:
Professional liability insurance (malpractice) if such as an attorney or accountant
General liability insurance (ex. injuries to third parties on-premises)
Property insurance (ex. damage to business equipment)
Workers= compensation insurance
Group medical coverage
Long-term disability insurance
Business interruption insurance (covers profit losses while business is interrupted)
Employee bonds (if coverage not provided under professional liability insurance)
“Key Man” insurance (provides needed cash flow in case of loss of a partner or key employee)
Your insurance agent should be consulted regarding any other or special insurance needs you may have. For a business just starting out, this may seem like a distressingly long list of potential expenses. Frequently, circumstances may dictate coverage, and low-risks and low coverage have lower premiums. You may have difficulty hiring employees unless medical benefits are provided.
Workers’ compensation insurance is required if you have three or more employees, including part-time employees. The basic rates for this coverage for a new business are set by statute. Having a Adrug-free workplace@ policy in effect may help to reduce claims since implementing such a policy gives you the right as an employer to ask that an employee behaving suspiciously submit to drug testing.
4. Set up a trust account or escrow account.
If you receive money from a client that is not yet earned (as in a refundable retainer), earmarked for another purpose (costs, deposits), or the ownership or distribution of which is yet to be determined, you should and in some fields must place it in a trust or escrow account. Most banks are familiar with such accounts and can be helpful to you in setting one up. You should be aware that individual banks may have restrictions and requirements on these accounts.
5. Set up a business checking account.
Your business checking account is the account into which all income from your business is deposited and out of which all expenses relating to the operation of the business are paid. You should not use the same account for both your personal and business needs. The bank will probably ask you for several things:
1) Your Federal Employer Identification Number (FEIN).
2) Your occupational license. The bank wants to know that you are a properly licensed business before allowing a commercial account to be set up.
3) If you are a corporation or LLC, the bank may want to see proof of your status from the Florida Secretary of State or the corporate seal.
6. Set up your books and payroll system.
Don’t wait until after you have hired employees, received payments from customers, paid a deposit on your lease, or paid other bills before setting up a bookkeeping system. Having your books set up in advance allows you to start on Day 1 organized, in control, and in compliance with state and federal law. Many small businesses contract with an independent bookkeeper or accountant to handle their books on a part-time basis. If you choose this route, be sure to ascertain that the person is not only generally competent and honest but also knowledgeable about matters peculiar to your business. Computer programs such as Quickbooks or Peachtree can also be used and there are, often, training classes available for such programs.
7. Pay sales and use tax on direct mail purchases from out-of-state vendors and where you are a dealer or in a service business using goods from out-of-state.
Often the best deals on needed items are from out-of-state vendors. If you buy through the mail, the vendor generally does not charge you sales tax on these items. According to law, however, you must still pay a sales and use tax on purchases that will be used within the state of Florida. Your accountant can provide greater details if needed.
8. Pay Unemployment tax.
Unemployment taxes partially fund the payment of unemployment compensation benefits. Unemployment tax starts at a fixed percentage of your payroll (less than one percent). Over time, if you do not lose any employees under circumstances that would allow them to collect unemployment compensation, your tax rate will gradually shrink to almost nothing. Conversely, if even one employee collects benefits and you are found Achargeable, your rates can increase dramatically.
While the law of employment-at-will, may give you a right to fire or lay off an employee for a non-discriminatory reason, this right is not necessarily connected to whether that person can apply for and receive unemployment benefits which can affect your charged rate. For example, you may fire an employee who is simply not capable of producing the quality of work you require, but that employee would probably receive unemployment compensation if applied for. A year or so later, your UC tax rate will go up. Generally, an employee=s benefits will be charged to the employer=s account except under three circumstances:
- An employee is discharged for misconduct:
- An employee quits for reasons not attributable to the employer; or
- An employee is discharged for poor performance while on an initial probationary period not to exceed 90 days in length, of which the employee was notified within seven days of hire.
9. Prepare a business plan.
Business plans define why your business will be successful. They include the Who, What, When, Where, and How of your business and the products or services you plan to provide. Business plans outline the goals of the business, explain the operating procedures, detail the competition, include a marketing plan and explain the company’s current and desired funding. If your company plans to seek funding either in the form of a traditional loan or from venture capitalists, a thorough business plan will be required for the application process.
10. Be aware a business owner has multiple responsibilities.
The E Myth Revisited by Michael Gerber is a book we highly recommend. It explains that a small business owner often has to wear the different hats of technician, manager, and entrepreneur. The owner often does the work, has to make sure the work is getting done and people are functioning properly, and has to develop what the business does or will do and get the business in the door.
11. Backup electronic records.
Computers can crash or be destroyed by fire, hurricane, or flood. Offsite backup of your data so that you can quickly recreate it is essential. There are service providers that maintain secure servers that do a routinely scheduled backup of your data. Mozypro is one example.
12. Determine the business agreements you should have.
A well-run business will operate with many forms of agreement. Many disputes can be avoided by well-thought-out and drafted agreements. At the beginning of any relationship, goodwill and cooperation are the normal states of affairs. That can change and, while all possible future problems are hard to envision, most can be foreseen by the parties and agreement reached on how to deal with such issues if they arise. The following is a sample of the types of agreements the firm can assist you with.
13. LLC Operating Agreements
If you are going into business with others, it is very wise to agree upon how to deal with the problems that routinely confront co-owners. Issues such as buying and selling ownership interests are critically important. This is especially true in the case of death, disability, retirement, or other events causing less than all owners to leave the business. In this area, you likely need assistance in defining buyout options and how the price of a buyout would be determined.
14. Noncompete and Nondisclosure Agreements
Such agreements are becoming more common between employers and employees. There is a natural conflict between wanting to develop and harness employee skills and the fear that an employee will learn the particulars of a business and then go out and become a competitor or sell their knowledge to an established competitor. This area is regulated by statutory law in Florida which seeks to set reasonable limits on what can and cannot be restrained. Businesses may also expose outsiders to information they wish to otherwise keep private.
15. Credit Applications
Who will be liable for the account, are there charges such as interest or attorneys fees if the account is not paid on time, where can lawsuits to collect be brought if the parties are from different cities or states, and what investigative information can be obtained are among the issues that a well-drafted credit application will contain?
16. Sale of Goods or Services Agreements
Among the pitfalls are the issues in the Credit Applications section above, whether warranties are included or excluded, and what are the procedures, if any, for the return of defective goods.
17. Arbitration Agreements
Have you ever wondered if there is a way to avoid going to court if a dispute develops? Arbitration agreements are favored by the courts but they should, like all agreements, address a number of formalities such as who will serve as arbitrator. They provide an alternative to going to court that can decide a dispute faster and more efficiently than a court suit. A downside of arbitration is that the arbitrator fees can be significant.
Leases provide for the use rather than ownership of property. A host of issues should be addressed in a lease. The price and duration are the easy part. Other important things to consider are permitted uses, care of the premises, other tenants, and landlord responsibilities. For example, who pays for property expenses such as taxes, insurance, and common areas? These and dozens of other issues should be addressed in an effective lease.
19. Independent Contractor Agreements
This is a particularly dangerous area for a business. Severe State and Federal problems can ensue from trying to treat employees as independent contractors for tax and workers comp reasons.
And now the tedious disclaimer: Sorry, have to do it. The matters discussed here are general in nature and are not to be relied upon as legal advice. Every specific legal matter requires specific legal attention. The law is constantly changing, and matters discussed today may not be the same tomorrow. Legal matters are also subject to different interpretations by attorneys, judges, jurors, and scholars. No attorney-client relationship is intended or created as a result of matters discussed here. You should consult counsel of your choice if you have any dealings in these areas of the law. Volk Law Offices, P.A., and its attorneys and other employees make no representations or warranties with respect to the accuracy or completeness of the matters addressed.