Launching your own business is a huge decision, one not to take lightly. From developing your product or service and getting funding to taking measures to protect your business, entrepreneurs must do their homework. As a business and tax attorney, one question I often hear is:

What is the best way to set up a new business?”

While the answer varies depending on the goals of each client, an LLC is often chosen.

What is an LLC?

An LLC, or limited liability company, is a U.S. business structure that combines the simplicity, flexibility, and tax advantages of a partnership with the personal liability protection of a corporation. The owners of LLCs are called members. An LLC can have one or many members. Members can be individuals or other businesses, and there is no limit to the number of members an LLC can have. With an LLC structure, members’ personal assets are protected from the LLC’s creditors. LLCs are more cost effective and simpler to form than a corporation. This, in addition to the discussion below, has led to LLCs becoming the ‘go-to’ business structure to form.

Who should form an LLC?

Generally, any person who is starting a business or is currently running a business should consider forming an LLC. But LLCs are not only great to operate a business, they are also great to hold assets to limit liability. For example, placing rental property into an LLC will protect the members’ other assets from liability (those assets that are not owned by the LLC). This concept will also work with intellectual property assets, such as separating the trademarks and patents from the operating entity.

What are the benefits of an LLC?

There are four benefits of forming an LLC:

  1. Personal asset protection. An LLC provides its members with limited liability. This means the LLC member generally is not personally liable for any debts incurred by the LLC and the majority of related lawsuits. Since the members are not personally liable, those who initiate a suit against the LLC cannot collect against the members’ personal assets, such as bank accounts, personal car, or home. They are generally limited to those assets of the LLC.
  2. Pass-through taxation. Simply put, LLCs will ordinarily provide their members with pass-through taxation. This means that the profits and losses that the LLC incurs will pass through to the members on the members’ personal tax return. These profits will be taxed at the members’ personal tax rates. LLCs only have one layer of taxation.
  3. Simplicity. An LLC is the simplest business entity to form and operate. With an LLC it is not required to have officers and directors, board or shareholder meetings, other similar administrative burdens that come with a corporation. This does not mean that the LLC is not governed by state law or the governing documents of the LLC, it only means there are less administrative burdens with an LLC.
  4. Flexibility. LLCs provide enormous flexibility with respect to ownership, management, and taxation. LLCs do not have any minimum or maximum number of members unless the LLC has elected to be taxed as an S-Corporation. The governing documents of the LLC may determine which events require majority consent or unanimous consent, what is to occur upon the death of a member, and the LLC having a first right of refusal to purchase membership interests, among many other events that may be controlled by the governing documents of the LLC.

LLCs can also choose how they want to be taxed. Typically, LLCs are taxed as a sole proprietorship (single-member LLC) or a partnership (multi-member LLC). However, both with a sole proprietorship and a partnership each may elect to be taxed as an S or C-Corporation. This is performed by filing an election with the Internal Revenue Service indicating the LLC’s desired tax classification (these elections must be submitted within the applicable time period). A reason an LLC may elect to be taxed as an S-Corporation is to save on FICA taxes (self-employment taxes). If the LLC elects to be taxed as an S-Corporation, the members of the LLC who work for the LLC will only pay Social Security and Medicare taxes on their actual compensation rather than on all of the LLC’s pre-tax profits. An LLC that does not elect to be taxed as an S-Corporation will result in the members who work for the LLC being classified as “self-employed” and will owe FICA taxes on the LLC’s total net earnings.

What are the disadvantages of an LLC?

Although the cost to form an LLC is less than forming a corporation, there is still a cost associated with forming and maintaining an LLC. To form an LLC in Florida, one must file Articles of Organization with the State. Florida requires all entities to file an Annual Report each year and failure to file an Annual Report will result in the LLC being administratively dissolved. It is cheaper to file the Annual Report rather than to reinstate an LLC. In addition, the LLC should have an operating agreement drafted by an attorney and adopted by the LLC. Depending on the line of business the LLC is operating, the LLC may need to renew licenses and permits annually as well.

Limited liability has limits, though. The failure of the members to follow state law and the governing documents of the LLC may result in a court “piercing the corporate veil.” This means that the assets of the members of the LLC will be subject to liability. Common examples of reasons why a court may “pierce the corporate veil” are:

    • a member has committed fraud or other illegal business activities;
    • a member has done an act to compromise the line of separation between the business and personal transactions;  or
    • a member has not managed the LLC in accordance with the operating agreement.

Join us in Naples for StartUp Bootcamp

start upThe above only discusses one aspect entrepreneurs need to know before starting a business. Join us on Tuesday, November 16, 2021, from noon to 4:00 pm at Ave Maria Law School in Naples for StartUp Bootcamp. Click here to download the brochure.

Ave Maria Law School CEO, Dean Czarnetzky, will kick off the event and share information on its Business Institute. Next, my colleague Luca Hickman and I will discuss two fundamental aspects of a business – how to set it up and how to protect it. The closing panel, moderated by Luca, will provide real-world advice from three guest speakers on how to get funding:

  • Timothy J. Cartwright, Fifth Avenue Family Office, Partner; Tamiami Angel Funds, LLC, Chairman and Co-Founder; and Adrenaline Venture Fund, General Partner
  • Blake M. Cathey, Chief Operations Officer of Accanito Capital Group
  • Dan H. Vo, Assistant Professor of Entrepreneurship Daveler & Kauanui School of Entrepreneurship at Florida Gulf Coast University

Registration is $40 for live in-person attendance or $20 if attending virtually. Admission is complimentary for students. To register, click here.

If you should have any questions regarding setting up an LLC, I may be reached at matthew.brust@henlaw.com or by phone at 239-344-1147.

Maritime GPSA group of charter boat captains are making waves by challenging NOAA Fisheries plan to monitor charter boats in the Gulf of Mexico. Last July, NOAA Fisheries issued a mandate requiring charter boats to allow federal agencies to monitor 24-hour GPS devices on their boats. The rule, which has since been delayed would affect an estimated 1,700 charter boat captains, including many in Lee County.

NOAA New Rule

The new rule requires charter boat captains to submit an electronic fishing report (or logbook) using federally approved hardware and software with GPS location capabilities. Along with the transmission of fish-related information, captains are “required to report certain business data: charter fee, fuel usages, fuel price, number of passengers, and crew size.” Prior to departing for any trip, charter boat captains must declare the type of trip, whether for-hire or not, and details of the expected completion. NOAA states the new rule is intended to

improve the best scientific information available for regulatory decisionmaking; increase the accuracy of economic impacts and value estimates specific to the for-hire industry; and will support further value-added research efforts and programs aimed at increasing net benefits to fishery stakeholders and the U.S. economy.”

Captains’ Concerns

Continue Reading Mandated Monitoring Attempts to “Hook” Charter Boat Captains 24/7

Data privacyCurrently, there is no broad, generally applicable federal law or regulations concerning data privacy, the collection and use of data or consumers’ rights regarding same. Instead, the matter has been left to the individual states to address. California has led the charge and its data privacy laws are generally regarded as the strongest and most consumer-friendly.

2021 Florida Legislative Session

Earlier this year, the Florida legislature took up the question of online privacy and considered HB 969, the Florida Consumer Data Privacy Act. Modeled after similar legislation in California, HB 969 contained provisions that, among other things, imposed requirements on businesses that collect information from consumers via websites or apps. Specifically, such businesses would be required to inform consumers exactly what data they collect and how they use that data. Consumers would then have the opportunity to grant or deny authorization to collect and/or use that data. HB 969 also contained a provision that would have allowed consumers to sue businesses that used information without authorization.

Because of the parallels to California privacy law and the rights it would give consumers, HB 969 was a landmark piece of legislation that, in terms of data privacy, would rank Florida among the most protective states in the Union. However, HB 969 was heavily lobbied and debated as business interests did not like the potential exposure to suits from consumers relating to the use of personal data. While there was broad, bipartisan support for the bill, the Legislature could not compromise and HB 969 died on the floor on the final day of the legislative session.

Where does Florida rank?

Continue Reading Data Privacy in the USA: Where does Florida rank? Where are we heading?

sailboats in a marinaHurricane season runs from June 1 through November 30. We are currently in the peak of hurricane season, as most storms occur in August and September, and the next major storm could be right around the corner.

High winds, storm surge, rising sea levels, and increased tides are just some of the concerns boaters must consider during hurricane season, and preparing your boat is one of the most important ways you can protect your asset.

In advance

  • Check your personal dockage, or speak to your marina regarding storm preparations and securing your vessel;
  • Many marinas will offer emergency mooring or dry dock provided you have contacted them well in advance — in fact, reserve now for next season — to secure space during an emergency;
  • Update your boat inventory and supply lists, photograph the vessel and all important equipment and inventory; and,
  • Copy and protect your boat insurance policy, registration and documentation, any lease agreements with marinas or storage facilities, photos, and inventory lists and store them in a safe location.

When a storm is imminent

Continue Reading Preparing and protecting your boat for a hurricane

trade secretWhen many entrepreneurs think of trade secrets, they think of high-tech companies or large manufacturers. For example, software architecture and source code are generally protected using trade secrets. Another example of businesses that have many trade secrets is legacy manufacturers which need to protect how products are made, what products are made out of, etc. Famous examples of trade secrets from these industries range from Google’s® search algorithms to KFC’s® “11 secret herbs and spices.”

But all businesses – even the most “simple” – have trade secrets. At the very least, all businesses have customer lists, vendor lists, profitability/pricing information, etc. – with many businesses having much more. The best way to evaluate whether certain information might be a trade secret is to think about real-world business consequences. I often ask my clients,

If one of your best employees left for a competitor and took certain business information with them, would that be upsetting?”

If the answer is “yes,” then that information needs to be evaluated for potential trade secret protection. That can run the gamut from customer lists to the “secret sauce” that makes a business successful.

Whether your business is large or small, below are five important tools that can be used to protect trade secrets.

Legal Tools to Maintain Secrecy

Continue Reading 5 Tools Small Businesses Can Use to Protect Their Trade Secrets

Waitress in a maskIn keeping with his candidate promises, President Biden’s new appointees issued new COVID-19 regulations. Under the prior administration, the EEOC concluded an employer could require an employee to be vaccinated as a condition of employment. While subject to certain limitations, such as accommodations for medical conditions and religious objections, this was a significant win for employers as they tried to return to normalcy.

Lack of consistency among government agencies

The EEOC’s pronouncement was seen as giving employers the approval to encourage vaccination. BJ Zarvis of Pewter Mug restaurant, “I saw this information as a way to give me, my employees, and my customers some comfort knowing that they were coming to a safe place.”

But then OSHA, under the new Biden administration, announced that any employer that created a mandatory vaccination plan would be subject to OSHA reporting rules if there were any adverse effects from the vaccination. Any lost days would be reportable, which potentially subjects the employer to higher insurance rates and fines. “When I heard about OSHA’s position,” said Zarvis, “I decided it wasn’t worth it to make it mandatory.”

Luckily, OSHA’s position took considerable heat from the public, across the political spectrum, such that it finally announced it was rolling back its position and not making adverse effects from a mandatory vaccination program reportable. So employers like Zarvis can again consider the pros and cons of making vaccinations mandatory.

What is keeping employers from mandating vaccinations?

Continue Reading How are Florida employers keeping up with ever-changing vaccine requirements?

CryptocurrencyOver the last several months, there have been dozens of news stories about cryptocurrencies, Blockchain, and the related technologies they have created. One item, in particular, has received an incredible amount of press—the NFT. Who has not heard of the $69 million price tag on Everydays – the First 5000 Days and other outlandish prices for digital art. This article will try to explain just what an NFT is and, because of their relationship to the creative arts, some of the intellectual property issues surrounding them.

It all starts with Blockchain

Blockchain is a technology that has emerged as an innovative, record-keeping technology that authenticates transactions. It is essentially a transaction ledger that is open and decentralized, so anyone, with proper access credentials, can view the ledger to the authenticity of whatever is being transferred and the chain of ownership. Blockchain is the technology behind cryptocurrencies like Bitcoin and Dogecoin and ensures that the cryptocurrencies being transferred in a transaction are authentic.

What is the difference between “fungible” and “non-fungible”?

Continue Reading NFTs and Intellectual Property

Wine GlassesOn May 13, 2021, Florida Governor Ron DeSantis signed into law Senate Bill 148, which allows restaurants or other alcohol beverage vendors to sell alcoholic drinks to-go.  No, this does not mean that Florida is an open container state; possession of an open alcoholic container in Florida is still illegal under Florida Statutes, section 316.1936 and 856.011. However, customers who want to order take-out from their favorite restaurant can now also bring home their favorite cocktail, providing the restaurant meets certain requirements.

The alcoholic drinks to-go initially started through one of DeSantis’s emergency orders as a way for struggling restaurants during the COVID-19 pandemic to increase their sales. “Alcoholic drinks to-go became an important source of revenue for restaurants that were trying to survive during the pandemic,” DeSantis noted. Throughout the pandemic, restaurants were some of Florida’s businesses that were most affected. Florida Representative Josie Tomkow stated, however, that the new law

allows for restaurants to continue to offer alcohol-to-go as an option. This pro-consumer, business-friendly bill will help support our restaurant industry and its tens of thousands of employees.”

Requirements

Continue Reading I’ll Take it To-Go: New Florida Law Makes To-Go Alcohol Sales Permanent Effective July 1

There is no such thing as an unimportant Supreme Court of the United States (SCOTUS) opinion. As someone who vigorously defends the media in First Amendment cases, I eagerly awaited the SCOTUS opinion in Maloney Area School District v B.L. The opinion was rendered on June 23, 2021, and I quickly read it looking for nuggets I could use in the representation of my clients. Although the case did not involve media, the 8-1 (Justice Thomas dissenting) decision importantly upheld First Amendment protections.

Defenders of the First Amendment will hail the decision as another important victory for free speech and will no doubt cite to the opinion authored by Justice Breyer and the significant statements concerning the importance of the First Amendment:

  • “America’s public schools are the nurseries of democracy. Our representative democracy only works if we protect ‘the marketplace of ideas.’ That marketplace must include the protection of unpopular ideas, for popular ideas have less need for protection.”
  • “The First Amendment protects ‘even hurtful speech on public issues to ensure that we do not stifle public debate.’”

Take-Away

Continue Reading SCOTUS Decision on First Amendment Rights: Who Really Won?

COVID-19 vaccineOn June 12, 2021, a federal judge entered an Order dismissing a hospital employee’s lawsuit attempting to block a hospital policy requiring employees to receive a COVID-19 vaccine. Houston Methodist Hospital announced a policy on April 1, 2021, mandating that all employees receive one of the COVID-19 vaccines. The hospital eventually suspended 178 employees without pay for their refusal to get vaccinated. Jessica Bridges, along with 116 other hospital employees, brought suit to block the vaccine requirement and to overturn their suspensions and possible terminations.

At the beginning of 2021, there was much speculation throughout the country regarding whether or not employers could require employees to receive a COVID-19 vaccine. In a previous article, Can Employers Require Employees to Receive the COVID-19 Vaccine?, I indicated that the answer appeared to be yes, with some exceptions. Now U.S. District Judge Lynn N. Hughes appears to have confirmed this through his dismissal of Bridge’s lawsuit.

Plaintiff’s argument opposing COVID-19 vaccine

Continue Reading Federal judge upholds employer’s COVID-19 vaccine requirement