How to Start a Business in Florida – Part 1: Structure
We recognize that starting a business can be simultaneously satisfying and frustrating. With the lowest income taxes in the nation, Florida is an excellent place to start your business. In an effort to make the process painless and easy to understand, we have outlined seven steps in a three-part blog series focused on getting your business started. Part 1 of this blog series features the first critical step – determining your structure.
Step 1. Chose a structure
There are multiple structures ranging from for-profit corporations to social benefit corporations to sole proprietorships. Let us help break it down for you.
Sole Proprietorship: A sole proprietorship is owned by a single individual. This can be any type of business and is considered the simplest of business structures. It does not require additional paperwork such as an agreement or filing documents, although it might require the use of tax receipts. You may choose a fictious name for the business, and it requires a simple registration with the Florida Department of State to proceed with conducting business under that name. The downside is that you as the owner are legally indiscernible from the business itself, and therefore are solely responsible for any debts or liabilities associated with the business. As the sole proprietor your personal assets are without protection from lawsuit or lien related to business activity, and non-business property can be taken to fulfill a judgement.
LLC: A limited liability company (LLC) is the most popular business structure in Florida. It is a hybrid entity that combines the benefits of pass-through taxation with liability protection. It is also a versatile structure that can be used for a small business run by an individual, or for a larger business with multiple owners. In either case the LLC must be managed by the owners or manager-managed, where one or more managers is selected by the owners. To form an LLC articles of organization must be filed with the Florida Department of State. Although an operating agreement is not required, it is advisable to form an operating agreement that will better suit the needs and goals of the members. Without an agreement in place, the LLC’s guidelines and operations will default to Florida Statutes.
General Partnership: A general partnership (GP) is when two or more individuals come together to own and operate a for-profit business. While this arrangement can be formally established through a written partnership agreement, any association of two or more persons for the purpose of running a commercial enterprise is legally recognized as a partnership. Florida has partnership laws that can be used as defaults for guidelines, procedures, duties, and other aspects concerned with running a general partnership. Each partner has a share of the business’s profits and losses, a right to receive distributions, and can transfer their respective interest. They also have a fiduciary responsibility to look after the interests of the overall partnership and individual partners. All partners are individually and jointly liable for all obligations related to the partnership. The major benefit of this type of business is the ‘pass-through’ status for income tax – meaning that the partnership’s profit and losses are reported on each of the partner’s tax returns, avoiding possible double-taxation. This will require the assistance of a Certified Public Accountant. The main downside of a GP is the lack of liability protection, as well as the lack of existence of other pass-through structures that offer limits on personal liability.
Corporation: A corporation is formed when one or more persons file articles of incorporation with the Florida Department of State. A corporation is a distinct entity from the individuals who own and operate it. The governing rules and guidelines of a corporation and its members are set forth in its bylaws, which serve the equivalent functions as an LLC or partnership agreement would. Corporations are owned by stockholders (shareholders), who transfer capital into the corporation in exchange for a proportionate value of stock. These stockholders are responsible for electing directors, who in turn are responsible for appointing officers. This type of entity is divided into two categories: subchapter C (C corps) and subchapter S (S corps), named after the provisions in the US Internal Revenue Code. Under both state and federal law, the rules and regulations applying to both types are similar, especially with regards to offering limited liability to stockholders, up to the value of the stock they own. The main distinction is that C corps are subject to corporate income tax on all net profits, with dividends being subject to a separate income tax; while S corps are taxed as “flow through” entities, therefore avoiding double taxation. The downside of S corps is that it faces several constraints: they must be domestic entities, have no more than 100 stockholders, offer only one type of stock, and be limited as to what sorts of entities may own shares in the company.
We hope we have helped answer your questions and we would love to be on your team and help your business grow! Call to set up a consultation with Mallory Brown or Thomas Thompson at (850) 386-5777.