One of the first – and most important – decisions you must make if you are starting your own business in Florida or acquiring another one – is what type of business structure best suits your needs. The one you’ll ultimately choose will be based on a number of factors such as your financial circumstances, tolerance for risk, need for simplicity and expediency, and whether you’re working alone. To make that decision, however, you’ll have to know a bit about the different business entities in Florida and how they work. Here’s a general overview of each one.
If you’re starting a business from scratch, you don’t anticipate making a whole lot of money at first, and you won’t be working with anyone else, a sole proprietorship may be best for you.
One of the reasons this business model is so attractive is because it is easy to create and disband. Another reason is that any profits realized are taxed at your individual federal tax rate. Although you must report your earnings on Schedule C or Schedule C-EZ, there is no need to file separate Florida corporate income tax returns.
However, there is also significant risk associated with this type of business entity. This is because there is no legal differentiation between you and the business. As a result, a sole proprietorship does not afford any protection for your personal assets if you are sued or encounter serious financial difficulties. This means if you choose a sole proprietorship, it is important to consult with legal and financial professionals who can help identify ways to mitigate this risk.
Like sole proprietorships, partnerships in Florida are also simple to create. In this type of business entity, two or more people contribute funding and share liability. In these general partnerships, business earnings are reported on each partner’s individual tax returns.
General partnerships are also similar to sole proprietorships because the liability shared by the partners is unlimited. This means each partner’s personal assets are potentially at risk.
A limited partnership (LP) is a variation of a general partnership. In this type of arrangement, one person is the “general partner” and is responsible for management of the business. He or she is also personally liable for any debts or other financial obligations incurred by the business. On the other hand, the “limited partner” has limited liability but no authority as a manager. You should also keep in mind that all limited partnerships must file with the Florida Department of State, Division of Corporations.
Another variation on the general partnership model is the limited liability partnership (LLP). The fundamental difference is that all partners in these business entities share limited liabilities. This means that legally, they cannot be held personally responsible for the business debts or obligations, or for their partner’s misconduct or negligence. This is how Eskander Loshak LLP is organized and is common among Florida law firms.
In a limited liability company (LLC) the owners or members also have limited liability, meaning their personal assets are not at risk. Florida LLCs may also choose how they are taxed. Specifically, they can opt to be taxed as partnerships or corporations. In terms of filing federal taxes, LLCs with more than one member file a partnership return on IRS Form 1065 unless they elect to be classified as a corporation. LLCs must file with the Florida Department of State, Division of Corporations.
Finally, a corporation is a type of business that is legally recognized as a separate legal entity. As such, it must also be incorporated with the Florida Department of State, Division of Corporations.
Within the overall corporate classification, there are two different types of corporation. One is the C-Corporation and the other is the S-Corporation. In the former, the corporation pays taxes and assumes liabilities. On the other hand, in an S-Corporation, up to 75 shareholders can share income and expenses, and disclose them on their individual income tax returns.
As we already noted, this is only a basic overview of the corporate entity types available in Florida. For more information about these business structures and help determining which is best for you, contact us today.