Making a business in Florida - Part 2 of 9
The most common business entity used at present in Florida is the LLC. This essay examines what was its birth and where did it come from.
Historically, several hundred years ago, the partnership was the only method by which to conduct business with others. Then, in the mid-1500s, the corporation as we understand it as a means to do business came into being to support voyages to the new world.
It would seem that it was deemed more practical at the time to have a small governing board to guide the venture with one-hundred fifty shareholder/investors as opposed to one-hundred and fifty actual partners who each might have wanted to have the adventure go in a different direction.
From that time until the end of the twentieth century, the options for business people were the corporation or the partnership. The corporation requires directors, officers, and shareholders and there are legal requirements called corporate formalities that must be followed or the business risks losing the liability protections the corporation provides. The partnership historically provided no liability protection for the partners. In the early 1990s, the Florida Legislature attempted to inject some liability protections for partners into the entity but the complexity of these various offshoots of the partnership such as the limited liability limited partnership were quickly overshadowed by the much easier to manage LLC.
Most businesses in Florida are closely held concerns owned by one or a handful of people, Generally speaking, most business in Florida are not large businesses with hundreds of stockholders, publicly traded stock, a large board of directors, or thousands of employees. Therefore, the corporation as a legal entity by which to conduct business was too cumbersome for the average business and was akin to nailing a thumbtack in with a sledge hammer.
When the Florida Legislature revised the partnership laws to allow for different types of partnerships to try to better accommodate how business people were actually operating in the State they quickly realized that the changes created a problematic climate that was too complicated. By the end of the 1990s the efforts to change the partnership into something that would better protect the partners were largely abandoned in favor of the limited liability company that has rendered the partnership all but obsolete and eclipsed the corporation as the entity of choice for businesses operating in Florida today.
The Palm Beach Business Lawyer Blog
Board Certified expert in Florida business law, David Steinfeld has almost 25 years legal experience.