Corporate Governance

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Forming and Organizing an LLC (FL)

by Practical Law Corporate & Securities

Law stated as of 04 Oct 2018 • Florida

This Practice Note is a guide to the procedural steps, documents, and considerations necessary to form a limited liability company (LLC) in Florida, including a professional limited liability company. This Note discusses initial considerations, organizational documents, pre- and post-formation matters, and other important issues.

Contents

Initial Considerations

State of Formation

Name of the LLC

Pre-Formation Logistics

Articles of Organization

Filing the Articles of Organization

Professional Limited Liability Company

Operating Agreement

Considerations Regarding Ownership Interests

Initial Acts of the Members or Managers

Post-Formation Matters

Preparing the Minute Book and Ledger

Apply for a Taxpayer Identification Number

Obtain Licenses and Permits

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Tax Considerations

Employee Incentive Considerations

Capital Raising Considerations

Further Assistance

Initial Considerations

When forming a business in Florida, the first step is deciding what type of entity is best (for example, a corporation, partnership, or limited liability company (LLC)). The best entity form depends on structure, liability, tax, and management

considerations (see Choosing an Entity Comparison Chart (FL)). LLCs offer substantial flexibility and combine the liability protection of a corporation with the tax treatment of a partnership. For these reasons, LLCs are increasingly popular business entities. Advantages of an LLC include:

• Limited liability of the members for the LLC’s debts. A member is an individual or entity who is an undissociated

member of the LLC (§§ 605.0102(40), (48), 605.0401, and 605.0602, Fla. Stat.).

• Greater flexibility in allocating profits among members.

• Freedom to contract for the management of the LLC’s business, often superseding default statutory requirements.

• Fewer formalities than with a corporation (for example, an LLC is not required to have annual meetings or keep written minutes of its proceedings).

• Pass-through taxation to avoid double taxation, unless the members choose an alternative tax classification (see Practice Note, Choice of Entity: Tax Issues).

• Fewer restrictions on ownership.

Disadvantages of an LLC include:

• Additional hurdles if the LLC plans to eventually become a public company.

• Generally more complex than a partnership.

• The income of certain members may be subject to self-employment tax (see Practice Note, Dual Status: Treating Partners as Employees: Wage Withholding and Payroll Taxes – Partners).

When deciding to form an LLC, there are also several threshold issues to consider. For information on certain principal issues involved with forming an LLC, see Forming an LLC Checklist. For additional state-specific issues to consider before preparing a comprehensive operating agreement, see Operating Agreement Checklist (FL).

State of Formation Before forming an LLC, organizers must determine the preferred state of formation. LLCs are governed by the laws of the state of formation. In Florida, the Florida Revised Limited Liability Company Act (RLLCA) (§§ 605.0101 et seq., Fla. Stat.) governs the management and operation of an LLC and includes provisions concerning:

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• Formation.

• Management by members or managers. A manager is a person or entity that is responsible under an operating

agreement (alone or with others) to perform the management functions set out in the RLLCA (§§ 605.0102(38), (48), 605.0407(3), and 605.04073(2), Fla. Stat.).

• Contributions and distributions.

• Membership, assignment of membership interests, and dissociation.

• Mergers and conversions.

• Dissolution.

Organizers should also consider where the LLC will primarily transact its business and if there are any business, tax, social, or policy reasons for choosing a particular state. Forming an LLC in the state where it will primarily conduct business is typic ally the easiest and most cost effective. However, there may be business advantages, tax or otherwise, to forming an LLC in other states, such as Delaware or Nevada. If the LLC is going to conduct a regulated business in a state other than Florida, it may be easier to obtain the necessary s tate licenses if it is a domestic LLC within that state. For more information on qualifying a foreign entity to do business in Florida, see Qualifying a Foreign Entity to do Business in

Florida Checklist.

Name of the LLC Before drafting or filing any formation documents, determine the name of the LLC. The name of a Florida LLC must:

• Contain the words “limited liability company” or the abbreviation “LLC” or “L.L.C.”.

• For professional LLCs formed on or after January 1, 2014, contain the words “professional limited liability company” or the abbreviation “PLLC” or “P.L.L.C.” in lieu of the words or abbreviations used for a general LLC (§ 621.12(2)(b)(3), Fla. Stat.).

• Be distinguishable from all other entities or filings in the records of the Florida Department of State, Division of Corporations (DOC), except for:

• fictitious name registrations (§ 865.09, Fla. Stat.);

• general partnership registrations (§ 620.8105, Fla. Stat.); and

• limited liability partnership statements (§ 620.9001, Fla. Stat.).

• However, an LLC may register under a name that is not otherwise distinguishable with the written consent of the owner of the similarly named entity if the consent is filed with the DOC when the indistinguishable name is registered.

• Not contain language implying a purpose other than one authorized by the RLLCA and as stated in the articles of organization.

• Not contain language stating or implying association with a state or federal governmental agency or corporation chartered under US laws.

(§ 605.0112(1), Fla. Stat.)

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A name is not distinguishable when the difference is due to:

• A suffix.

• A definite or indefinite article.

• The word “and” and the symbol “&.”

• The singular, plural, or possessive form of a word.

• A recognized abbreviation of a root word.

• A punctuation mark or symbol.

(§ 605.0112(1)(b), Fla. Stat.) For more information on naming an LLC, see Division of Corporations: Division FAQs. To avoid possible delays in filing the articles of organization, organizers should conduct a preliminary search for name availability through the DOC’s online records (see Division of Corporations: Search for Corporations, Limited Liability Companies, Limited Partnerships, and Trademarks by Name). Names cannot be reserved in advance. Final name approval is determined by the DOC, so a name should not be used until the DOC acknowledges that the articles of organization have been accepted for filing. The DOC’s website states that the LLC is liable for any infringements resulting from the name selected (see Division of Corporations: Articles of Organization). If the LLC will transact business in Florida under any name other than its legal name, it must register that name with the DOC as required by the Florida Fictitious Name Act (§ 865.09, Fla. Stat.). For more information on using and registering a fictitious name, see Practice Note, Fictitious Names in Florida. If the LLC intends to use its name as a trademark, service mark, domain name, or trade name, organizers should run a trademark search to see if the name is currently registered by another business. These searches can be conducted for free online (see Division of Corporations: Search for Corporations, Limited Liability Companies, Limited Partnerships, and Trademarks by Name and US Patent and Trademark Office). Organizers should not take any action in reliance on the availability of a name until the DOC has filed the articles of organization. It is often a good idea, particularly if an attorney is handling the filing for a client, to have backup name ch oices in case a name is taken or rejected.

Pre-Formation Logistics Once the state of formation and the name of the LLC have been identified, counsel should determine:

• Who the organizers should be. The organizers prepare, execute, and file the articles of organization. An attorney often

acts as the organizer, but the organizer does not need to be an attorney. An organizer also does not need to be a member of the LLC. (§ 605.0102(8)(a), Fla. Stat.)

• Whether to use a service company to file the formation documents. Although many firms and companies have a

relationship with a particular service company, using a service company is not required. If counsel does not already have a service company, check the law firm or company directory or with another member of the team for the name of the preferred service company and contact information. At law firms, paralegals often have this type of information.

• The street and mailing address of the LLC’s principal office. This information must be included in the articles of organization (§ 605.0201(2)(b), Fla. Stat. and see Required Provisions). The LLC’s principal office does not have to be

in Florida (§ 605.0102(54), Fla. Stat.).

• The location of the LLC’s registered office. An LLC must designate and continuously maintain a registered office in

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Florida, which may (but need not be) the same as its place of business in the state (§ 605.0113(1)(a), Fla. Stat.).

• The LLC’s registered agent. An LLC must designate and continuously maintain a registered agent whose business

address is the same as the address of the LLC’s registered office and is:

• an individual Florida resident; or

• a foreign or domestic entity authorized to transact business in Florida.

• (§ 605.0113(1)(b), Fla. Stat.)

• Whether the LLC should have an indefinite duration. By default, an LLC has an indefinite duration, subject to certain

dissolution events (§§ 605.0108(3) and 605.0701, Fla. Stat.). The operating agreement can vary this default rule if the LLC prefers to have a specific period of duration (§ 605.0105(2), Fla. Stat.).

• Whether the LLC will render professional services. If the LLC will render professional services, such as the practice

of law or medicine, there are additional statutory requirements, such as limitations on who can be a member of a professional LLC (§ 621.09(2), Fla. Stat. and see Professional Limited Liability Company).

• Whether the LLC should be member-managed or manager-managed. Unless otherwise provided by the operating

agreement or articles of organization, management is vested in the members (§ 605.0407(1), Fla. Stat.).

• Whether the LLC should be a single-member or multi-member LLC. A Florida LLC may have one or more members

(§ 605.0401, Fla. Stat.). If two or more parties are forming the LLC, they should be advised of their rights to seek separate counsel in relation to their individual interests.

• The type of operating agreement. Members of an LLC may enter into one comprehensive long-form operating

agreement or a series of one or more stand-alone agreements covering different matters (§ 605.0102(45), Fla. Stat.).

• Whether the LLC should have majority and minority interests or be a 50/50 LLC. Majority and minority parties often

have different concerns than two 50/50 members.

There may be situations where an existing business wants to become an LLC. Florida law allows foreign and domestic entities that are not organized as LLCs to convert to Florida LLCs by complying with certain statutory requirements. (§§ 605.1041 et seq., Fla. Stat.) Examples of business entities that may convert to a Florida LLC include:

• Corporations.

• Nonprofit corporations.

• Real estate investment trusts.

• General partnerships.

• Limited partnerships.

• Limited liability partnerships.

• Limited liability limited partnerships.

• Any other Florida or foreign entity organized under an organic law.

(§§ 605.0102(23)(a) and 605.1041(2), (3), Fla. Stat.) For more information on Florida entity conversion, see Entity Conversion and Domestication Checklist (FL). An existing business converting to a Florida LLC may have responsibilities for certain tax matters (see Department of

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Revenue: Considering Business Opportunities in Florida?). There may be other tax consequences associated with converting to an LLC. Therefore, the entity should seek advice from a tax professional before taking any action.

Articles of Organization Under the RLLCA, a Florida LLC is formed when the articles of organization become effective and the LLC has at least one member (§ 605.0201(4), Fla. Stat.). As part of the formation process, the organizer must file the articles of organization with the DOC. Although the RLLCA only requires minimal information in the articles of organization, organizers should consider whether there are any additional provisions to include, such as a statement setting out any limitations on the authority of members or managers to bind the LLC. (§ 605.0201, Fla. Stat.)

Required Provisions Under the RLLCA, the articles of organization must include:

• The LLC’s name, which must comply with the RLLCA’s requirements (see Name of the LLC).

• The street and mailing address of the LLC’s principal office (where the LLC’s principal executive offices are located, within or outside Florida) (§ 605.0102(54), Fla. Stat.).

• The name, Florida street address, and written acceptance of the LLC’s initial registered agent.

(§ 605.0201(2), Fla. Stat.)

Optional Provisions Beyond these required provisions, the articles of organization can include any other provisions consistent with the law that the members want in the articles of organization for the regulation of the internal affairs of the LLC, including:

• A declaration of whether the LLC is member-managed or manager-managed.

• For manager-managed LLCs, the names and addresses of the managers of the LLC.

• For member-managed LLCs, the names and addresses of one or more of the members of the LLC.

• A description of the authority or limitation of authority of specific persons or positions in the LLC.

(§ 605.0201(3), Fla. Stat.) However, an LLC should consider omitting other information not required by law from the articles of organization because:

• Optional information such as details regarding membership, capital contributions, profit and loss allocations and distributions, meetings, termination provisions and other particulars of the LLC’s internal affairs and business operations, may be better left out of a public record and instead included in the LLC’s operating agreement. For more information on operating agreements, see Standard Document, Operating Agreement (Single Member) (FL).

• If the information changes in the future, revising an internal governing document rather than the articles of organization offers the LLC greater flexibility and cost-savings since an amendment or restatement of the articles of organization requires an additional filing and fee (§§ 605.0202 and 605.0213(11), Fla. Stat.).

Prohibited Provisions The articles of organization may not modify or otherwise alter certain matters that cannot be modified in the LLC’s operating agreement (§§ 605.0105(3) and 605.0201(3), Fla. Stat. and see Operating Agreement).

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Effective Date and Time If the articles of organization are silent, the default statutory effective date and time is the date and time of filing. The initial articles of organization alternatively may state a specific delayed effective date and time that is not more than 90 days after the filing date or a prior effective date not more than five business days before the filing date. If the initial articles of organization state a delayed or prior effective date without a time, the articles of organization are effective by default at 12:01 a.m. on the effective date. (§ 605.0207(3) to (4), Fla. Stat.) If the specified effective date does not meet the applicable statutory filing requirements, the effective date of the initial articles of organization is:

• For a prior effective date, the later of the specified date or five business days before the filing.

• For a delayed effective date, the earlier of the specified date or the 90th day after the filing.

(§ 605.0207(4), (5), Fla. Stat.) The effective date of the articles of organization is typically the filing date. However, there are situations where delaying the effective date is useful. For example, the LLC may need time to prepare an operating agreement or to wait for member contributions of cash or other assets to be in place. For filings late in the year, there may also be administrative or tax advantages to delaying the effective date until the following year. For more information on creating the articles of organization, see Standard Document, Articles of Organization (FL). A sample form for the articles of organization is also available on the DOC’s website (see Division of Corporations: Articles of Organization).

Filing the Articles of Organization Organizers may file the articles of organization online, by mail, by walk-in service, or by fax. For more information on filing documents with the DOC, see Practice Note, Filing Documents with the Division of Corporations (FL). The filing fee for the articles of organization is $125, which includes:

• $100 for the articles of organization.

• $25 for the designation of registered agent.

(§ 605.0213(2), (7), Fla. Stat.)

Professional Limited Liability Company One or more professionals may form, or cause to be formed, a professional LLC (PLLC) under the Professional Service Corporation and Limited Liability Company Act (PSLLCA) (§§ 621.01 et seq., Fla. Stat.) for the sole and specific purpose of rendering the professional service that the professionals are duly licensed or otherwise legally authorized to practice (§ 621.03(3), Fla. Stat.). Only other PLLCs, professional corporations, or individuals who are licensed or otherwise legally authorized to render the same professional service for which the PLLC was formed can be members of the PLLC (§ 621.09(2), Fla. Stat.). A PLLC is formed by filing articles of organization under the RLLCA (§§ 605.0201(4) and 621.13(2), Fla. Stat.). If the RLLCA conflicts with the PSLLCA, the PSLLCA governs the PLLC (§ 621.13(2), Fla. Stat.). Professional services include any type of personal service to the public that requires licensure or other legal authorization. Examples of professional services under the PSLLCA are personal services rendered by accountants, physicians, dentists, architects, veterinarians, attorneys and life insurance agents. (§ 621.03(1), Fla. Stat.)

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Operating Agreement The operating agreement defines the LLC’s management structure, describes how the LLC’s profits are allocated and distributed, and sets out the agreements among the LLC’s members. It is similar to a combination of a corporation’s bylaws and a typical shareholders’ agreement. For more information on operating agreements and their principal provisions, see Practice Note, LLC Agreement Commentary. When preparing the operating agreement, parties should consider:

• The rights of members. The operating agreement should spell out a member’s aggregate rights in the LLC, including

the right to:

• share in the LLC’s profits and losses;

• receive distributions from the LLC; and

• vote and participate in the LLC’s management.

• Whether the LLC will have multiple classes of membership interests. With the flexible capital structure of an LLC, classes of membership interests can be created which include:

• non-voting interests;

• non-economic interests;

• convertible interests;

• income interests; or

• profit interests.

• The management of the LLC. Unless otherwise specified in the articles of organization or operating agreement,

management is vested in the members (§ 605.0407(1), Fla. Stat.). An LLC may be:

• member-managed, which is the management structure of most small business LLCs, with each member typically

having the inherent authority to act on behalf of the LLC and execute contracts; or

• manager-managed, which is generally more appropriate where there are passive members in the LLC (for example,

investors who are not actively involved in the direct management or day-to-day activities of the LLC), with managers governing the LLC in a manner similar to a corporation’s board of directors.

• In either case, the operating agreement should specify rules and procedures for members and managers to follow when managing the LLC.

• For further information on the distinctions between manager-managed and member–managed LLCs, see Standard Document, Operating Agreement (Single Member) (FL): Drafting Note: Management.

• Initial capital contributions. The operating agreement should state how an initial capital contribution will be made,

whether by cash, tangible or intangible property, services rendered, promissory notes, or other obligations (§ 605.0402, Fla. Stat.). The operating agreement may also address a member’s liability or penalty for failing to make a contribution (§ 605.0403(5), Fla. Stat.). The default rule under the RLLCA, unless eliminated or varied by the operating agreement,

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however, is that a person can become a member without making or being obligated to make a contribution to the LLC (§§ 605.0105(2) and 605.0401(4), Fla. Stat.). The operating agreement should specify if all, or just certain, members are required to make an initial contribution and the form and amount of that initial contribution.

• The allocation of profits, losses, and distributions. The operating agreement should specify how profits, losses, and

distributions are allocated among the members. Otherwise, the allocation is based on the agreed value of each member’s contributions to the LLC as stated in the LLC’s records (§ 605.0404(1), (5), Fla. Stat.).

• The admission of new members and the transfer of membership interests. The operating agreement should specify

the terms and conditions of admitting new members and any transfer restrictions on the membership interests (§§ 605.0401(3)(a) and 605.0502(6), Fla. Stat.). For a discussion of potential transfer restrictions, see Transfer Restrictions and Buy-Sell Rights.

• The dissolution and winding up of the LLC. The operating agreement can specify events or circumstances that cause

dissolution (§ 605.0701(1), Fla. Stat.). The RLLCA has default rules to determine who winds up an LLC’s affairs after dissolution, but the operating agreement can vary these default rules unless judicial supervision of the winding up is ordered (including the court-ordered appointment of a person to wind up the LLC) (§§ 605.0105(3)(j) and 605.0709(5), Fla. Stat.). The operating agreement also cannot vary certain other statutory requirements for winding up the LLC’s business, activities, and affairs (§§ 605.0105(3)(j) and 605.0709(1), (2)(a), Fla. Stat.).

For more consideration of the above topics, see Operating Agreement Checklist (FL). A Florida LLC, regardless of the number of members, is not required to have a written operating agreement (§ 605.0201(4), Fla. Stat.). Nevertheless, an operating agreement is generally used to govern:

• The relations among the members and between the members and the LLC.

• The rights and duties of the LLC’s manager or managers.

• The LLC’s activities and affairs and the conduct of those activities and affairs.

• The means and conditions for amending the operating agreement.

(§ 605.0105(1), Fla. Stat.) Most of the RLLCA’s provisions are default provisions, meaning they only apply if the applicable subject is not otherwise addressed by an operating agreement. If an operating agreement covers one of the matters set out above, it supersedes the RLLCA’s default rules. (§ 605.0105(2), Fla. Stat.) However, the following RLLCA provisions that cannot be varied by the operating agreement:

• Vary an LLC’s capacity to sue and be sued in its own name (§ 605.0109, Fla. Stat.).

• Apply any law other than Florida law to:

• the LLC’s internal affairs; or

• a member’s or manager’s liability for the LLC’s debts, obligations, or other liabilities.

• (§ 605.0104, Fla. Stat.)

• Vary the Florida Act’s requirement, procedures, or other provisions on:

• registered agents; or

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• the DOC, including those related to documents that must be filed.

• Vary provisions related to signing and filing on behalf of the LLC under a judicial order (§ 605.0204, Fla. Stat.).

• Eliminate the duty of loyalty or the duty of care except as otherwise provided by the Florida Act. For example, if the conduct does not involve bad faith, willful or intentional misconduct, or a knowing violation of law, the operating agreement may, if not manifestly unreasonable:

• alter or eliminate aspects of the duty of loyalty;

• identify activities that do not violate the duty of loyalty;

• alter the duty of care (but may not permit any willful or intentional misconduct or a knowing violation of law); and

• alter or eliminate any other fiduciary duty, such as common law duties of loyalty and care.

• (§§ 605.0105(3)(g), (4)(c) and 605.04091, Fla. Stat.)

• Eliminate the obligation of good faith and fair dealing (§ 605.04091, Fla. Stat.), except the operating agreement may prescribe standards by which performance will be measured, if not manifestly unreasonable.

• Relieve or exonerate liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law.

• Unreasonably restrict the member’s or manager’s duties and rights to inspect and copy LLC records (§ 605.0410, Fla. Stat.), except the operating agreement may:

• impose reasonable restrictions on the availability and use of information; and

• define appropriate remedies (including liquidated damages) for any breach of those restrictions.

• Vary the grounds for judicial dissolution (§ 605.0702, Fla. Stat.).

• Vary certain requirements for winding up the LLC’s business, activities, and affairs on dissolution, including:

• discharging or making provision for the LLC’s debts, obligations, and other liabilities;

• settling and closing the LLC’s activities and affairs;

• distributing the LLC’s assets; and

• conducting the wind up under judicial supervision, if applicable.

• (§ 605.0709, Fla. Stat.)

• Unreasonably restrict a member’s right to maintain a direct or derivative action (§§ 605.0801 to 605.0806, Fla. Stat.).

• Vary provisions relating to special litigation committees (§ 605.0804, Fla. Stat.), except the operating agreement may bar the LLC (but not a court) from appointing a special litigation committee.

• Vary a member’s right to approve a merger, interest exchange, or conversion if the member will have any interest holder liability for any of the LLC’s debts, obligations, or other liabilities arising after the transaction (§§ 605.1023(l)(b),

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605.1033(l)(b), and 605.1043(l)(b), Fla. Stat.).

• Vary the required contents of a plan of merger, interest exchange, conversion, or domestication (§§ 605.1022, 605.1032, 605.1042, and 605.1052, Fla. Stat.).

• Restrict the rights of a person other than a member or manager, except as otherwise provided by the RLLCA (§§ 605.0106 and 605.0107(2), Fla. Stat.).

• Indemnify a member or manager for:

• conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law;

• a transaction where the member or manager received an improper personal benefit;

• personal liability for improper distributions (§ 605.0406, Fla. Stat.); or

• a breach of fiduciary duties or obligations except as permissibly restricted, expanded, or eliminated by the operating agreement (§§ 605.0105(3)(g), (4) and 605.04091, Fla. Stat.).

(§ 605.0105(3), Fla. Stat.) For examples of operating agreements, see Standard Documents:

• Operating Agreement (Single Member) (FL).

• Operating Agreement (Multi-Member, Manager-Managed) (FL) (a long-form agreement for an LLC with multiple members, one of which is the LLC’s manager).

• LLC Agreement (Single Class, Multi-Member) (a long-form agreement for a manager-managed LLC with multiple members).

• LLC Agreement (Operating Company) (a long-form agreement for a joint venture with two members and a managing member).

The last two forms are based on the Delaware Limited Liability Company Act, which differs from the RLLCA in several material substantive areas that will affect the drafting of the operating agreement.

Considerations Regarding Ownership Interests

Transfer Restrictions and Buy-Sell Rights There are certain clauses the LLC may consider including in the operating agreement that affect the future purchase or sale o f membership interests, including:

• Right of first refusal. A right of first refusal requires a member who has received an offer from a third party to first

offer its interest to the other members. For a sample provision, see Standard Clauses, LLC Agreement: Right of First Refusal.

• Right of first offer. Like the right of first refusal, a right of first offer requires a member wishing to sell its interest to

offer the interest to the other members first. For a sample provision, see Standard Clauses, LLC Agreement: Right of First Offer.

• Drag-along provision. A drag-along provision gives a majority member wishing to sell all or a substantial percentage

of its membership interests to an unrelated third party the right to force the other members to also sell all or a portion of

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their membership interests to the third party. For a sample provision, see Standard Clauses, LLC Agreement: Drag-Along Rights.

• Tag-along (or co-sale) provision. A tag-along provision gives minority members the right to participate on a pro rata

basis in any controlling member’s sale of its membership interests to a third party. For a sample provision, see Standard Clauses, LLC Agreement: Tag-Along Rights.

• Pre-emptive rights. Pre-emptive rights give the members the right to buy a pro rata portion based on their ownership

interest of any future membership interests the LLC issues. For a sample provision, see Standard Clauses, LLC Agreement: Pre-Emptive Rights.

Unless the operating agreement provides otherwise, for example, in a permitted transfer where the transferee becomes a member of the LLC in accordance with the operating agreement, if a member transfers his interest in whole or in part to a person other than another member, the transferee only receives a transferable interest. Unless the operating agreement provides otherwise, a transferee receiving a transferable interest:

• Has no right to manage or be involved in the conduct of the LLC’s activities and affairs.

• Has no right to access the LLC’s records or other information except during dissolution.

• Only has the right to receive the distributions to which the transferor would have been entitled.

(§ 605.0502(1)(c), (2), Fla. Stat.) Unless the operating agreement provides otherwise, the transferor of a transferable interest retains the rights of a member not associated with the transferable interest, including all duties and obligations of a member (§ 605.0502(7), Fla. Stat.).

Certificated or Uncertificated? The LLC must determine whether its membership interests should be evidenced by certificates (similar to share certificates) or uncertificated (§ 605.0502(4), Fla. Stat.). Whether an LLC’s membership interests are certificated is usually addressed in the operating agreement. LLCs sometimes do not issue certificates for membership interests. However, if a member wishes to pledge its interest as security for a loan, lenders may look to the operating agreement to verify whether the interests are certificated. Counsel should also consider including a reference to any operating agreement transfer restrictions, buy-sell rights, or transfer requirements on the certificates of membership if any are issued (see Transfer Restrictions and Buy-Sell Rights). A transfer of a transferable interest that violates any transfer restriction is ineffective if the transferee had knowledge of the restriction before the transfer (§ 605.0502(6), Fla. Stat.).

Initial Acts of the Members or Managers

Though not required by the RLLCA, some LLCs choose to pass initial resolutions of the members or managers similar to the matters authorized at an organizational meeting of the directors of a Florida corporation (§ 607.0205, Fla. Stat.). If the LLC chooses to do this, consider authorizing organizational acts such as:

• Applying for foreign qualification in other states.

• Adopting the fiscal year (LLCs usually operate on a calendar year).

• Opening bank accounts and authorizing signatories.

• Appointing officers (LLCs can have officers similar to corporations).

• Approving budgets, especially if the LLC will have third-party investors.

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The LLC should also address specific actions or documents the members or managers need to approve (for example, employment agreements). If the LLC is being formed for a specific reason or as part of a transaction (such as a merger), it may also need to approve deal-specific agreements and documents.

Post-Formation Matters

Once the LLC is formed, there are several things to do before it can begin conducting business.

Preparing the Minute Book and Ledger Though typically a corporate practice and not required under the RLLCA, LLCs should keep minute books as a matter of good governance and organization. If the LLC uses a service company, it may sell minute books, or the LLC can order one from a variety of online sources. Once the minute book has been ordered and received, the LLC should determine who (counsel or the LLC itself) will hold and maintain it. An LLC must maintain at its principal office or another location:

• A current list of each member and manager’s full name and last known business, residence, or mailing address, which can be prepared in the form of a ledger.

• A copy of the then-effective operating agreement and any amendments (if written).

• A copy of all documents filed with the DOC, including:

• the LLC’s articles of organization and any amendments;

• articles evidencing any transaction or change in structure; and

• executed copies of any powers of attorney under which those documents were executed.

• Copies of the LLC’s federal, state, and local income tax returns and reports for the last three years.

• Copies of the LLC’s financial statements (if any) for the last three years.

• Unless contained in a written operating agreement, a record stating the amount of cash and a description and statement of the agreed value of any property or other benefits contributed to the LLC by each member, including any future triggering events for additional contributions.

(§ 605.0410(1), Fla. Stat.) Copies of all formation documents, member agreements, resolutions, and other organizational documents are normally kept in the minute book. The LLC may maintain its records on a tangible medium or in an electronic or other medium that is retrievable in p erceivable form (§ 605.0102(59), Fla. Stat.). As an alternative to or in conjunction with storing paper versions in an official minute book, the LLC may consider scanning or creating electronic copies of its records and maintaining them in a secure, searchable database.

Apply for a Taxpayer Identification Number

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To register for and pay taxes, an LLC must obtain a taxpayer identification number (TIN) from the Internal Revenue Service (IRS), which is typically required before an LLC can transact business such as opening a bank account (see IRS: Taxpayer Identification Numbers (TIN)). A TIN may be the owner’s social security number (SSN) for a single-member LLC when its tax status is a disregarded entity, it will not have any employees, and it meets all other IRS requirements. For more information on whether an LLC is eligible to use a single owner’s SSN, see IRS: Do You Need an EIN? and IRS: Do You Need a New EIN?. If the LLC plans to eventually admit additional members, best practice is to apply for a TIN when the LLC begins. This prevents the LLC from having to change its TIN in the future after those additional members are admitted. An LLC with multiple members or any other tax status typically must obtain a TIN by signing up for an employer identification number (EIN). Counsel or the client should consult with a tax specialist familiar with these matters before the LLC obtains an

EIN. An EIN may be obtained:

• Online at IRS: Apply for an Employer Identified Number (EIN) Online.

• By mailing a completed IRS Form SS-4 to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.

• By faxing IRS Form SS-4 to 1-855-641-6935 (see IRS Form SS-4 and IRS: Instructions for Form SS-4, Where to File or Fax).

If counsel registers an LLC for an EIN (or any other TIN) online or otherwise as a third-party designee, counsel must obtain a signed paper copy of IRS Form SS-4 from the organizers, members, or principal officers as evidence of counsel’s authority to register the LLC.

Obtain Licenses and Permits Some business activities require licenses or permits from state or local governments. For assistance in determining whether the LLC requires licenses or permits for certain business activities, see the Florida Department of Business and Professional Regulation. Before applying for a license or permit, parties should consult with a specialist that is knowledgeable in the specific type of license or permit sought. Parties can also contact the county clerk and the clerk of the city, town, or municipality in which the LLC intends to operate with questions regarding local licenses or permits. If the LLC is going to conduct business in other states, it must be properly qualified. Counsel should verify the specific requirements of each state in which the LLC will do business. This typically involves:

• Checking the name availability of the LLC in that foreign state.

• Preparing and filing any necessary documents, often called a certificate of authority. These documents often contain similar information to the articles of organization and include submission of process in the jurisdiction.

• Paying fees.

Tax Considerations

Even though an LLC is a recognized type of business entity under Florida law, LLCs do not have their own US federal income tax regime. For federal income tax purposes, an LLC is typically treated as a pass-through entity. This means that for federal income tax purposes the entity is not directly subject to income tax, but rather the income passes through to the owner-members as follows:

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• A single-member LLC is a disregarded entity and treated as a sole proprietorship.

• A multi-member LLC is treated as a partnership.

(Treas. Reg. § 301.7701-2(a).) However, an LLC may elect classification as a C-corporation or S-corporation for federal tax purposes. For more information on tax considerations under federal law, see Practice Note, Choice of Entity: Tax Issues and IRS: LLC Filing as a Corporation or Partnership. The IRS may be able to answer questions about paying or withholding federal income tax, Social Security taxes, and other federal taxes. However, an LLC’s organizers and members should consult an accountant or other tax advisor to determine the required tax filings and to discuss any other tax considerations involved in organizing and operating the LLC. An LLC’s tax classification under state law is not always the same as its tax classification under federal law. However, Florida treats an LLC the same as its federal tax classification whether it is a disregarded entity, partnership, corporation, or S-corporation. For more information on an LLC’s tax status under Florida law, see Department of Revenue: Florida Corporate Income Tax. Florida offers a wide range of tax incentives that may help an LLC minimize state taxes (see Department of Revenue: Florida Tax Incentives for Business). Counsel or the client should consult with a tax specialist familiar with both state and federal taxation issues before formin g an entity.

Employee Incentive Considerations

Profits interests or non-qualified options to acquire a membership interest can be granted to employees. Incentive stock options are unavailable. Profits interests provide favorable tax treatment to employees and are more common than options.

Both profits interests and options to acquire a membership interest are less familiar than traditional stock options and may result in an employee being treated as a partner for tax and employee benefit purposes. Other equity compensation arrangements (such as restricted stock units) can be replicated in the partnership context but are

uncommon. For more information regarding LLCs, see Choosing an Entity Comparison Chart (FL). For an overview of employment laws and human resources issues that may impact new and expanding companies, see Employment Law Issues for Start-ups, Entrepreneurs, and Growing Businesses: Overview. For an overview of the types of equity compensation commonly used by new companies for employees, see Practice Note, Choosing the Right Type of Equity Compensation for Start-up Company Employees.

Capital Raising Considerations

LLCs raise capital by issuing equity (membership interests) and incurring debt. Membership interests are typically issued in private placements. An LLC can create membership interests that mirror the properties of different types of stock. LLCs are not limited by a preset number of authorized interests, but may be restricted from diluting their current members’ interest by provisions in the operating agreement.

Further Assistance

An LLC can seek advice or assistance from several local, state, or federal programs to facilitate the business of the LLC,

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including:

• The US Small Business Administration (see US Small Business Administration: Region IV).

• SCORE, a non-profit association for the benefit of entrepreneurs and small businesses (SCORE).

• Local, state, or national Chambers of Commerce.

• The Minority Business Development Agency (MBDA), a part of the US Department of Commerce.

• Enterprise Florida, Inc., the state’s official economic development organization, which assists companies in locating to, expanding within, finding available properties in, and exporting from, Florida (see Enterprise Florida).

• The Florida Department of Economic Opportunity, which provides information about workforce programs, community development opportunities, and economic development initiatives and programs in Florida (see Florida Department of Economic Opportunity: Business Growth and Partnerships).

• The Florida State Workers’ Compensation System (see Division of Workers’ Compensation).

• The Florida Research and Economic Information Database Application (FREIDA), which allows users to access Florida employment and occupational data searches and labor or market analyses.

• The Florida Department of Management Services (DMS), which allows users to search for vendors that do business in Florida.