Business Law 101 / Corporations v. Limited Liability Companies
By Albert L. Kelley, Esq.
Many times, during the course of this column I have mentioned corporations and limited liability companies. What is the difference between the two? Both are statutory entities, and they have very similar structures. But there are very strong differences between them.
Corporations are governed by Section 607 of the Florida Statutes. They are formed by filing Articles of Incorporation with the Department of State. The main document that controls the actions of the corporation are the Bylaws. Corporations are owned by Shareholders who generally receive a stock certificate to prove their ownership. Unless the company has a Shareholder’s Agreement restricting the transfer of shares, the stock certificates can be freely sold by the shareholders. While many think that shareholders have a lot of power and control, the truth is, their involvement in a company is limited. Shareholders, aside from making an investment in the company and being able to sue if the company acts improperly, only have a say in a couple of areas. The main control aspect is the selection of Directors for the company. Directors are elected by Shareholders at the annual meeting (Corporations are required by law to hold a meeting of the shareholders at least once each year).
Directors are the long-term planners for a business. They are like the think-tank for the company. The Board of Directors sets out the goals for the company. They also are responsible for selecting the officers of the company.
Officers of a corporation include the President, Vice-President, Secretary and Treasurer. There can be other officers and often there will also be a Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The officers are responsible for carrying out the instructions of the Directors and running the day-to-day activities of the company.
Limited Liability Companies are very similar to Corporations in structure. There have been major changes recently in the law governing LLCs as the State Legislature completely rewrote the LLC laws in 2014. Today, LLC’s are governed by Florida Statute 605 and are formed by filing Articles of Organization with the Department of State. The main document controlling an LLC is the Operating Agreement. Prior to 2014, every LLC was required to have a written Operating Agreement. With the new law, the legislature determined that an Operating Agreement could be in writing or verbal, however if not in writing Courts could determine the terms of the Operating Agreement by looking at the practices if the LLC. LLCs are owned by Members, not shareholders. Instead of stock in a company, Members own membership units and usually receive a membership unit certificate to prove their ownership interest. Before 2014, Membership in an LLC could not be transferred without specific instructions set out in the Articles of Operating Agreement. However, under the 2014 statutes, membership interest is freely transferable, but, the Operating Agreement can put requirements on the process.
The Members main job is selecting the Managers. Managers to an LLC are similar to Directors of a Corporation. LLCs can but are not required to have officers. The Managers can act in their place.
The main differences between corporations and LLCs are in the areas of liability and taxes. We will discuss these next time.
Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” “Basics of Florida’s Small Claims Court” and “Basics of Florida’s Landlord-Tenant Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.