Single Member LLCs in Florida
As an entrepreneur, there comes a time when you need to form a separate legal entity for your business. This is crucial when your enterprise needs to incur debt to grow or when you offer personal services that could lead to legal liability. Creating a separate entity can protect you from being personally liable for the business’s debts or an employee’s mistake. When you intend to remain the sole owner of your business, you may want to consider a single member limited liability company. Unlike a corporation, which requires shareholders and officers to work with a board of directors, a single owner can control and profit from an LLC. However, there are special factors you should consider before choosing this type of entity for your business.
When an LLC only has one member – you – the Internal Revenue Service will automatically treat you and the entity as one in the same for income tax purposes. In this way, the LLC is known as a disregarded entity. All of the financial activities will be entered on your federal tax return, you must use your personal social security number (SSN) or employer identification number (EIN), and you will be responsible for self-employment taxes as if you were a sole proprietor. However, the IRS does consider the LLC separately for employment and some excise taxes. For these taxes, you will need to obtain and use the LLC’s EIN.
If you do not want to be taxed as a sole proprietor, you can elect that the IRS treat the LLC like a corporation. If treated like a corporation, the IRS will tax the LLC as a separate taxpaying entity. However, this can subject you to double taxation. The LLC’s profits will be taxed and then you will also owe income tax on wages or dividends you receive from the business.
Under Florida law, creditors of single member LLCs are treated differently than creditors for multi-member LLCs. Ultimately, as a single member, you have less protection from creditors who can receive judgements against the LLC and you.
When an LLC has two or more members, the property or cash of an LLC cannot be taken to pay off the personal liabilities of one of the members. However, a creditor can go to court and gain a charging order to receive all of the income or profit the debtor-member receives from the LLC. This enables creditors to be paid without harming the other member’s ownership. Additionally, the creditor only receives a financial interest. It cannot foreclose on the debtor-member’s ownership and gain decision-making power in the LLC. The same cannot be said for single member LLCs.
If you incur personal debt as a single member of an LLC, your creditor can gain a charging order to receive the income or profit you would take from the LLC. However, if the creditor remains unpaid, it can move forward in the courts to force a foreclosure of your ownership interest in the LLC. When your interest is sold, the new individual or business gains your entire interest in the business – not just a right to the money. You would no longer be an owner of your own business. The new single owner of the LLC – your creditor – can dissolve the business and sell the assets in order to pay off your debt.
Contact a West Palm Beach Business Formation Attorney Today
If you are an entrepreneur and you are looking into the best legal entity for you and your business, contact the Law Offices of Larry E. Bray, P.A. in West Palm Beach before you file any paperwork. A single member LLC makes sense in some situations. However, it may not offer you enough protection. Call today at 561-571-8970 to schedule a consultation.