Crucial Differences Between a Corporation and an LLC

A Limited Liability Corporation or LLC can provide the flexibility your business needs, with some advantages that a traditional company may not have. But a lot of us are not familiar with the structure, voting, and corporate documents involved in the formation and maintenance of an LLC.

The Operating Agreement

Like a corporation, an LLC has a document that sets forth how the company will operate, called an operating agreement.

While legally having an operating agreement isn’t required, it is good practice to have one. It can avoid people questioning the legality of your corporate actions, and, most importantly, solidify when the company is taking action, as opposed to you, personally, so as to shield you from personal liability for things the company does.

In the absence of an operating agreement, the rules of your LLC will default to what Florida Law says, which may not be what you want to happen in your LLC.

Members of an LLC

One person can form an LLC, called a single member LLC. Most LLCs have more than one member (a member is the name for an owner in an LLC).

Based on your operating agreement, you can specify which member has what responsibility in the LLC, if any, and how the LLC’s profits or dividends are divided up between members. All members in an LLC do not have to share in the company’s profits and losses equally, and they often do not.

This makes LLCs much more flexible than a partnership, where in most cases, partners will share equally in profits and losses.

Voting in an LLC

There are also many ways that members of an LLC can vote. Every member can get a vote, or members may get votes based on how much ownership interest they have in the LLC. While one-member one-vote may seem most equitable, and may avoid disputes between members, members who have a larger ownership share may want more of a voice in how the LLC operates.

As far as day to day management, you also have a choice. Some LLCs are member managed, in that all members of the LLC have a vote or input in the decisions the LLC makes. In manager managed LLCs, only the managers make the regular business decisions for the company.

Fewer Formalities

There are no legal requirements to document minutes or create resolutions in an LLC, but in almost every case, it is good practice to do so and can avoid legal problems down the road. That said, for smaller LLCs, or single member LLCs that don’t want as much formality and paperwork, the LLC can be better than a corporation.

Passing on When You’re Gone

Be aware that your company may not just automatically transfer to whomever you designate, when you are gone. Unlike corporations with Boards of Directors and shareholders to keep the company going, what happens to an LLC when its owners are gone, largely depends on the operating agreement.

Forming a business? Let us help you with the crucial early decisions when your business is new. Call the West Palm Beach commercial litigation lawyers at Pike & Lustig today.

Sources:

linkedin.com/pulse/difference-between-inc-llc-florida-llcformationhub-emlkc

dos.fl.gov/sunbiz/start-business/corporate-structure/#:~:text=A%20limited%20liability%20company%20(LLC,comply%20with%20other%20corporate%20formalities.