How to Safeguard the Liability Protection of Your Florida LLC

LLCs are more flexible than corporations, and easier to set up. LLCs also have fewer record-keeping requirements and fewer tax restrictions, yet work just as well as corporations in shielding an owner’s personal assets from business liabilities if the owner takes the proper steps to safeguard the LLC’s limited liability protection.

Here are some steps Florida business owners can take to preserve their LLC’s liability protection:

Have an operating agreement. An operating agreement should spell out the roles and responsibilities of each LLC member and manager and helps establish the LLC as a separate entity from its members in the eyes of a court. Even if you are the sole owner/manager, you should create an operating agreement that details your rights and duties. Florida has a statute that acts as a default operating agreement in the event that the LLC does not have one. It is advised to have one custom tailored to your LLC.

Don’t commingle funds. The LLC should have a separate bank account, distinct and separate from any personal accounts of its members. All company funds should be deposited and drawn from this account.

Document transactions with name of LLC. All business transactions should be signed in the name of the LLC, not the name of any individual member.

Record major transactions. Although LLCs are not required to hold annual meetings and record the details of those meetings, some courts have considered the absence of any company meeting records to be an indication that the entity is being disregarded. If there is more than one member in your LLC, document any important decisions you have made together. If you are a single owner/manager, record any significant actions you have taken in your role as manager or member.

Properly capitalize the LLC. Not properly capitalizing an LLC so that it has the necessary assets to cover debts and expenses can lead a court to look beyond the entity to your personal assets.

Avoid misconduct. If you break any laws or if incur business debts you know the LLC will not be able to pay, this may negate the liability protection of your LLC and a court could allow a creditor to come after your personal assets.

Have adequate insurance. An LLC does not necessarily protect you from liability from injury or other claims of third parties. Be sure you have the proper business insurance to protect you against negligence claims.