When starting up a new business, choosing the business structure that is most compatible with the goals of your company is imperative. If you are forming a new business here in Florida, or even if you are already a business owner in this state, a Central Florida business attorney can help.
What follows is a brief description of the various business structures and some tips on how to choose the structure that is right for you and your company. Generally speaking, businesses in Florida conform to one of these four basic business structures:
1. sole proprietorships
2. general or limited partnerships
3. S or C corporations
4. limited liability companies (LLCs)
WHAT DO SOLE PROPRIETORSHIPS OFFER?
The sole proprietorship is the most popular and most traditional business structure. More than 17 million sole proprietorships currently operate in the United States.
To start up a sole proprietorship, what you’ll need is a basic business license, any special permits (such as a liquor license or a contractor’s license) that your particular business may require, and a Social Security number.
A sole proprietorship is the simplest business structure to start up. If you are the only owner and your business is not incorporated, you are a sole proprietor. However, sole proprietorship provides a business owner with very little legal protection.
WHAT IS THE BIGGEST RISK WITH SOLE PROPRIETORSHIPS?
Your income as a sole proprietor is taxed only once, because you and your company are considered the same “legal entity.”
Thus, one of the negatives to a sole proprietorship is that when the business is at risk, the owner’s personal assets may also be at risk.
If your sole proprietorship cannot pay its debts, creditors may pursue – and in some cases seize – your personal assets as well as your business assets.
A sole proprietorship, therefore, requires discipline – it is not for everybody – because the complete responsibility for the business falls on one person.
WHAT DO PARTNERSHIPS OFFER?
Partnerships are another quite popular business structure. Partnerships are established when at least two persons do business together. Much like a sole proprietorship, a partnership is relatively easy to start up.
The state of Florida allows both “general” partnerships and “limited” partnerships. A general partnership, like a sole proprietorship, provides the owners with only the minimal legal protection.
HOW ARE “LIMITED” PARTNERSHIPS DIFFERENT?
A limited partnership in Florida must have at least one general partner managing the business and assuming liability for its debts, but a limited partnership must also have a “limited” partner – at least one investor who brings capital to the business but is not involved in management.
If they do not participate in the company’s management, a partnership’s limited partners are not liable for the debts of the company.
WHAT DO CORPORATIONS OFFER?
A corporation is a business structure that is a separate legal entity with multiple owners. As a legal entity, a corporation has legal “rights.” When a corporation is sued, the owners in most cases are legally insulated from personal liability (with several exceptions explained below).
Corporations appoint directors, routinely conduct corporate meetings, and record the minutes of those meetings. A corporation’s ownership can change through the transfer or sale of the corporation’s stock.
Corporations are stringently regulated. The IRS closely scrutinizes a corporation’s financial conduct.
IN WHAT SITUATIONS ARE A CORPORATION’S STOCKHOLDERS LIABLE?
Although shareholders are generally protected from personal liability, if a corporation’s creditors can demonstrate that business and personal funds were “commingled,” a corporation’s shareholders may become personally liable for its debts.
A corporation’s creditors may also pursue a shareholder’s personal assets if they can prove that the corporation was created simply and only to protect its shareholders. Proving such an allegation is called “piercing the corporate veil.”
WHAT ARE “S” CORPORATIONS AND “C” CORPORATIONS?
The two main types of corporations in the U.S. are “S” corporations and “C” corporations.
C corporations are taxable entities taxed at the standard corporate tax rate, but an S corporation’s losses and income are divided among the shareholders and transfer or “pass through” to the shareholder’s personal taxes.
A limited liability company has the limited liability that a corporation offers. An LLC’s owner may be a sole owner, a trust, a corporation, or another LLC. Depending on how they are established, LLCs may be taxed like partnerships or like corporations.
With some rather extensive paperwork and a good business attorney’s help, an LLC can be taxed like a partnership, but otherwise, an LLC will be taxed like a corporation.
WHAT’S BEST FOR YOUR BUSINESS?
You will have to choose one of these four basic business structures when you start up a business in Florida. The choice you make will determine how much paperwork you must submit, the way you will be taxed (and the tax rate), and your personal liability.
Your choice of a business structure has long-term implications. When you decide to start up a new business in Florida, the smartest move you can make is consulting with a Daytona Beach business attorney regarding the structure of your business.
Every business will require the help of an accountant and a business lawyer. The right business attorney can provide assistance with concerns including taxes, zoning, copyrights, trademarks, and compliance with employment and hiring laws.
HOW CAN A FLORIDA BUSINESS LAWYER HELP YOU?
All businesses are governed by federal, state, and local laws and regulations. A business lawyer can help you establish the business policies and practices that will protect you from lawsuits and other legal problems.
Business owners – almost daily – face a number of legal issues that directly affect their businesses: personal injury claims, discrimination claims, intellectual property protection, environmental concerns, advertising regulations, and of course, taxes.
If you’re starting up a new business in Florida, a business lawyer will also assist you with drafting the legal documents you will need, including but not limited to:
2. articles of incorporation
3. shareholder agreements
4. operations agreements
5. any other contracts, agreements, and policies
WHY IS LEGAL HELP SO VITAL FOR BUSINESS OWNERS TODAY?
Even routine, everyday business decisions – like hiring decisions – can open the door to potential legal difficulties. Business owners in the 21st century need legal help now more than ever before.
Do not let a legal dispute bring your business to a standstill. If you are a business owner in Florida, develop a long-term relationship with an experienced Central Florida business attorney.
Make the call to a business lawyer today. It’s the best business investment you can make.
After graduating from Davidson College, Melody Lankford earned her J.D. from Florida State University’s College of Law in 2004 and was admitted to the Florida Bar that same year. Ms. Lankford joined Raydon Corporation as in-house counsel in 2004. She worked there until 2012, when she founded the Lankford Law Firm. She is an experienced Daytona Beach small business attorney who offers sound legal counsel and experience-based insights to her business clients