Starting your own business allows you to enjoy the benefits of being your own boss and controlling your destiny. Florida is a hub for new businesses, with a booming economy and a growing population. In 2021, there were 5.4 million new business applications across the country.
Launching your business is no easy feat, though. You need to consider everything from the niche you’re going into, how you’re going to market your business, and the necessity of licensing and insurance for Florida-based businesses.
As part of starting your new venture, you need to consider its structure. Here’s a breakdown of the different structures available to you.
Limited Liability Company (LLC)
The first type of business structure is the LLC. This hybrid business structure is a combination of the partnership and the corporation.
Small and medium-sized businesses often prefer the LLC because they’re simple to form, flexible, and require less paperwork than forming a full corporation.
Formation
To create your LLC, all you need to do is file Articles of Organization with the Florida Department of State. It costs just $125, and your only requirements are to file an annual report and pay a small fee. It couldn’t be simpler!
Liability Protection
The main attraction of an LLC is it comes with the liability protection of a large corporation. Every member of an LLC receives protection from liability if your business is sued or files for bankruptcy.
In other words, your personal assets aren’t at risk by starting this type of company, unlike in a partnership.
However, the Florida Supreme Court did rule that a single-member LLC is not entirely insulated from a member’s liability.
Taxation
An LLC is a pass-through entity in the same way as a partnership. In other words, your revenues are classified as income. Distributions to members are taxed at their individual income levels. The LLC will never pay business taxes.
Businesses with large amounts of income will typically convert their LLCs to another business structure.
Ownership
There are no ownership restrictions on who can own and operate an LLC. This is why many foreign companies prefer to operate as LLCs.
You have two management structures to choose from when running an LLC. The member-managed system means every member participates in the decision-making processes. Alternatively, you could opt for a manager-managed system, whereby a manager handles all the decisions on behalf of the LLC’s members.
C Corporation
The C Corp is the most basic version of what most people view as the classic corporation. The C Corp is considered a separate legal entity unlike a partnership or an LLC.
In other words, your C Corporation acts for itself in legal matters and pays its own taxes. There are also far more regulations governing how a C Corp can be run and the paperwork its board of directors must file.
Formation
Florida comes with a whole host of strict legal requirements you need to fulfill to register your C Corp in Florida.
For example, you must have at least one director, hold an organizational meeting, and appoint officers to all the relevant positions.
The C Corporation requires far more time and attention to incorporate than an LLC.
Liability Protection
C Corporations insulate the board of directors from liability. Regardless of what happens, the personal assets of shareholders are shielded. This is one of the main benefits of forming a C Corp in the first place.
However, you’re not protected from control by your creditors.
Taxation
One of the significant disadvantages of operating a C Corp is double taxation. Corporate income tax applies to all corporate profits. Furthermore, shareholders who receive dividends and take money out of the company must pay personal income tax.
The only way to avoid double taxation is by electing to become an S Corp.
Read Also: Time’s 8 Most Influential Personalities from Superhero Films
Ownership
C Corps have no restrictions on ownership, just like LLCs. Anyone can be an owner/shareholder of a C Corp, including non-resident foreign nationals.
Unfortunately, you don’t have the same level of flexibility regarding ownership when running a C Corp. You must always have a board of directors, with several strict management requirements applying.
C Corp shareholders receive dividends according to the number of shares they own, so if one shareholder has 20% of the shares, they will only receive 20% of the dividends.
S Corporation
The S Corporation is not a separate business structure. However, it is a special tax election. It has several benefits, including avoiding the need to deal with double taxation. You need to elect to become an S Corp, and you can do it even if you’ve already launched your business.
Formation
To create an S Corp, you need to select the “S” status when filing IRS Form 2553. Then, within two-and-a-half months of sending your articles of incorporation to the Florida Department of State, you must make this declaration.
Liability Protection
You still have access to liability protection when forming an S Corp. It works the same way as LLCs and C Corps by shielding your personal assets.
Taxation
An S Corp is also a pass-through entity, but with a difference. While the profits and losses pass through to the shareholders to avoid double taxation, you can still receive a salary and dividends. These payments are taxed at a much lower rate.
Ownership
Federal law dictates several requirements you have to meet to become an S Corp.
Firstly, your S Corp cannot have more than 100 individual shareholders. Plus, only U.S. citizens, permanent residents, and some entities can be shareholders of an S Corp. Foreigners cannot be a shareholder in an S Corp.
Finally, you cannot have multiple classes of stock within an S Corp. For small businesses, this shouldn’t be an issue.
The management requirements of your company remain the same as the underlying entity. For example, if you have elected to become an S Corp as an LLC, the management rules of the LLC remain.
S Corp shareholders receive dividends based on how much of the company they own, in the same way as a C Corp.
Conclusion
Determining your business structure is an important decision. Each of the three structures outlined above has its own advantages and disadvantages.
Before settling on a business structure, evaluate what matters to you and your business. Remember, there are no do-overs.
What business structure is best for your Florida business?
