One type of limited liability companies or LLCs is the single-member LLCs. As the name implies, this term refers to an LLC that has just one member or owner. This is a common business structure in Florida as well as in other states and frequently abbreviated as SMLLC. While Florida doesn't have the best Single Member LLCs for asset protection, they do still offer many benefits when compared to a Sole-Proprietorship.
SM LLCs should also be familiar with the tax implications of this particular structure. Unless you change your taxation structure, the IRS treats single-member LLCs as disregarded entities by default. Disregarded entities get to take advantage of the pass-through taxes, so there are no concerns about double taxation like corporations face.
If you want, you can change the taxation structure of your LLC to a partnership, c-corporation, or s-corp. You should work with your accountant to decide which classification makes the most sense. You will need to let the IRS know about any classification changes in under 75 days following when you receive your EIN.
Drafting a Single-Member LLC Operating Agreement
The operating agreement is a key part of any LLC. Some states do not require them, but all smart LLCs will still create an operating agreement. This contract helps bind together members or owners of the LLC. Since a single-member LLC just has one member, many owners feel tempted to skip creating and ratifying the operating agreement.
When drafting the operating agreement for your single-member LLC in Florida, keep the following information in mind:
- If you are forming a single-member LLC, there is no requirement to draft an operating agreement. However, if you choose to do so, the operating agreement serves as an agreement between the single member and the LLC.
- This agreement can outline the company’s management structure, as well as member duties, rights, and obligations. Through this outlining process, the agreement helps to separate the single member’s personal finances from that of the LLC’s finances.
- In the state of Florida, if an LLC does not stipulate whether it is manager-managed or member-managed, it will receive the state’s default classification, which is member-managed.
- If you are a single-member LLC without any employees and a “disregarded entity” tax status, then you are not required to obtain an Employer Identification Number (EIN) from the IRS. In this case, the single member reports the LLC profits and losses on a personal tax return.
- If your single-member LLC does have employees or is taxed as a corporation, then an EIN should be obtained from the IRS.
In reality, however, skipping this step is a mistake for a few reasons. The agreement can demonstrate proof of ownership. The bank you choose to use may also require one. Furthermore, there are specific situations when you will need a manager as outlined in the operating agreement.
An example would be if you want someone else to open your bank account, then operate a real-estate property for the LLC. In situations when a manager is required, the operating agreement will clearly outline the actions that this manager can take.
Florida LLC Benefits vs. Sole-Proprietorship
Forming an LLC in Florida brings many benefits versus operating as a sole-proprietorship. This applies even if you're just a single member limited liability company. Enjoy additional privacy, asset protection and lower taxes. These benefits combine with an increased professionalism when dealing with clients.
How to Form Your Florida Single-Member LLC
In order to form a single-member LLC in the state of Florida, here are the following steps you must follow to ensure a successful formation:
Choose a Name for Your LLC
- Choose a name for your LLC that is unique from other active businesses in the state. To ensure your name is not currently in use, check the state records at the Division of Corporations website. Performing an entity search will allow you to see which names are already registered in Florida.
- Additionally, your Florida LLC must include an entity signifier, such as “LLC”, “LC”, “L.L.C.”, or “Limited Liability Company”. This signifier must be part of your official company name.
- Also note that while some states allow companies to reserve names in advance of their formation, Florida does not allow this. All LLC name selection in Florida is done on a first come basis.
File Articles of Organization
- To form your Florida LLC, you must file Articles of Organization with the Division of Corporations.
- Your articles will include information about your LLC, such as its name, principal place of business, and other contact information.
- Additionally, you will be required to include the name and street address of your registered agent, member names and contact information, as well as other information pertaining to the roles and ownership of each member.
- The Articles of Organization form can be completed at the Division of Corporations website or printed and mailed in. The filing fee for your articles is $125.
Designate a Registered Agent
- When choosing a registered agent for your LLC, you must be certain that the individual or entity meets all requirements set by the state of Florida.
- To serve as a registered agent, an individual must be a Florida resident with a physical street address in the state. If you select an out-of-state entity to serve as your LLC’s registered agent, that entity must have authorization to conduct business in Florida, as well as have a physical street address in the state.
- Your LLC must designate and maintain a registered agent to remain active and in good standing with the state of Florida.
- The registered agent must be available during regular business hours to receive legal papers and other important documents on behalf of your LLC.
- If your registered agent changes at any point, be sure to update this information with the state of Florida to ensure good standing.
File Your Annual Report
- Your single-member LLC is required to file an annual report with the state of Florida each year.
- The purpose of the report is to confirm your LLC’s information or update any changes that may pertain to your registered agent, membership, contact information, or addresses.
- The annual report is due by May 1st of each year. Your report can be mailed or filed online at the Florida Divisions of Corporations website. The filing fee for annual reports in Florida is $138.75. If you are late filing the report, your LLC will be assessed a $400 late fee.
Popularity of Single-member LLCs
A single-member LLC is actually one of the most common structures for business formations. This comes down to the simple fact that not every business owner will have a partner. While sole proprietorships are another option in that situation, they are not ideal for everyone. There are also liability advantages of LLCs over sole props, which further encourages the formation of SM LLCs.
There are certain fields in which limited liability companies with one member are particularly popular. This includes online retailers and investors in real estate. In those situations, the structure of holding companies featuring subsidiaries is highly beneficial to protect assets from liabilities. By default, this structure of holding companies with subsidiaries creates an LLC, leading to the popularity of the structure.
If you are thinking of forming a single-member LLC, you should remember that you will still need to take care of all the corporate formalities to enjoy the LLCs' benefits. You are not exempt from them just because your LLC has a sole member. This means you must get an EIN, get your business its own account at a bank, keep your books, hold meetings annually, and fulfill other requirements. The main differences between a multi-member and single-member LLC will show up in the operating agreement. Otherwise, most of the process of formation is identical.