As most business owners are well-aware, the limited liability company (LLC) is far and away the most popular legal structure for business entities within the United States. Since the incorporation of the first LLC in 1977, this legal structure has become widely used throughout virtually every industry. But while its popularity has remained consistently high, the legal underpinnings have varied quite a bit.
Indeed, LLC statutes are ever-changing, meaning the laws that govern LLCs are quite a bit different now than they were 30, 20, or even 10 years ago. When forming an LLC in Florida or anywhere else, it’s helpful to be abreast of the changing legal landscape.
It’s true enough that the core definition of the LLC has remained pretty static, as have the primary benefits.
An LLC is a business structure that creates a level of separation between the entity itself and the business owner. What this means in practical terms is that the business owner’s personal assets are separate from the business assets, and thus they are shielded from creditors and from lawsuits.
Additionally, the LLC structure provides members with flexibility regarding how they manage their business and even how they are taxed, with most LLCs choosing to be taxed in the same terms as a Sole Proprietorship.
How LLCs Have Changed
While the basics have remained fairly consistent, a number of important legal changes have shaken the LLC landscape. Here are just a few of the developments for business owners to be aware of.
1) Changes to formation documents
If you want to start an LLC, you’ll need to file some paperwork with your state entity’s business filing office. The document required to start an LLC is most commonly known as the Articles of Organization, though some states use slightly different terminology.
The information required by these formation documents has become much more limited over the years. No longer do you have to supply details like the latest date by which the LLC can be dissolved. Now, all that’s required is more basic contact information, the name of your registered agent, and a few other quick parameters about the business itself. All of that to say: Filing the paperwork to form an LLC has become easier over the years, which is surely related to the continued popularity of the LLC structure.
2) New allowances for LLC purpose
Another legal change for business owners to be aware of is that the law now recognizes a range of different purposes for LLCs; specifically, you can use an LLC to start either a for-profit or non-profit concern. In years past, the law has not expressly recognized the nature of non-profit LLCs.
3) New allowances for operating agreements
Historically, starting an LLC has always involved the development of an operating agreement, which stipulates the duties and responsibilities of each LLC member. In previous iterations of LLC law, it was mandatory for these operating agreements to exist in writing. Today, most states allow you to have an oral or even an implied agreement. (Implied meaning a default to the provisions specified in state laws.)
4) Differences in LLC membership requirements
Here’s an important legal evolution for solopreneurs. When the LLC structure was first developed, it was mandatory for each LLC to have at least two members. Today, it’s permissible to have a one-member LLC. This change has significantly expanded the usefulness of the LLC as a legal entity.
5) Changes to membership interests
State laws vary quite a bit with respect to LLC membership interests. Membership interests entail both financial rights and non-financial rights that are given to LLC members. The former category included allocations of the LLC’s profits and losses, while non-financial rights can include the rights to vote, inspect LLC records, and more. Many states’ laws have been altered or expanded over the years, meaning the nature of LLC membership interests is in a state of flux.
6) Changing permissions for member withdrawals
When the LLC structure was initially developed, a member could withdraw from their legal agreement at any time. This sometimes led to entire LLCs dissolving unexpectedly or prematurely. As such, most states have amended their statutes, making it so that membership withdrawal is contingent on the terms of an operating agreement. This has provided a much-needed level of protection and stability to multi-member LLCs.
7) Revised dissolution terms
Here’s a final change worth mentioning. When the LLC was first developed, the law stipulated a number of events that required the LLC to dissolve. Today, the dissolution of an LLC usually comes due to the consent of its members, or other events that are specified in the operating agreement. In short, the members of an LLC have a lot more control over if and when their business entity is dissolved.
The Ever-Changing LLC
These bullet points represent just a few of the ways in which the LLC entity has changed over the years. Crucially, the fundamental appeal of the LLC has remained consistent, and in some ways has even expanded. For those who wish to take advantage of the LLC structure, we recommend keeping an eye out for any additional legal changes at both the federal and state levels.