In Florida, like any other state, residents who are interested in forming a business must comply with specific filing requirements. Failing to comply with these rules can have serious legal implications, so if you are a Florida resident and are considering forming a business, it is important to speak with an experienced business formation attorney who can walk you through the process and help you decide which business model will best serve your interests.
Forming a Corporation
One of the most common types of business that is formed in Florida is the corporation. This type of business model is a good choice for owners who want a degree of protection from personal liability, but also want to be able to attract investors by issuing stock. Other attributes that help convince business owners to incorporate include:
- The established management structure that comes along with incorporation; and
- The opportunity to provide employees with either stock benefits or stock options.
Unfortunately, the incorporation process is often expensive and time-consuming, requiring owners to pay a significant amount of fees and prepare a series of documents. For instance, to form a corporation in Florida, business owners must choose a corporate name, which must include one of the following terms:
- Inc.; or
The name must also be recognizably different from the names of other companies in Florida. Aspiring business owners are then required to file the company’s Articles of Incorporation, which must contain specific information, including:
- The company’s name and address;
- The company’s purpose;
- The number of shares that the company is authorized to issue;
- The name, address, and signature of the person designated as the company’s agent for the purpose of service of process;
- The names and addresses of the officers and directors; and
- The name and address of the incorporator.
To complete the corporation formation process, the owner must also set up a corporate records book, obtain a federal Employer Identification Number, and create corporate bylaws that set out the basic rules for the company’s operation. Although companies are not legally required to have bylaws, owners are strongly encouraged to create them as they help establish a business’s legitimacy to banks and creditors. Finally, all for-profit corporations in Florida must file an annual report to maintain active status.
Potential business owners should also keep in mind that the profits from traditional corporations may be double taxed. This means that the business itself will be taxed for any profits earned and individual stockholders who earned profits in the form of dividends will also be taxed a second time.
Those who are looking for a simpler formation process may want to consider establishing a sole proprietorship, which does not require the owner to submit an official state filing. Instead, he or she must only obtain a business or occupational license. Although forming a sole proprietorship is much simpler than forming a corporation, the business owner will be considered personally liable for any of the company’s debts, including all liabilities and taxes. This is because with sole proprietorships, there is no separation of the individual’s personal assets from those of the business. Instead, the profits and losses pass through to the owner, who is then required to pay income taxes on those profits. If a person wishes to form a business with another person, he or she can choose to create a general partnership, which has the same basic characteristics of the sole proprietorship, but with the addition of a partner.
Florida business owners can also choose to create a limited partnership, which is a business entity with two or more owners. Generally, there must be at least one limited partner and one general partner in every limited partnership. The general partners are held personally liable for the debts and liabilities of the partnership, while the limited partner avoids liability as long as he or she does not participate in the active management of the business. In order to form a limited partnership, the potential partners must file a certificate with the state.
Limited Liability Companies
The limited liability company (LLC), combines the best aspects of partnerships and corporations. For instance, LLCs protect corporations from the owners’ personal liability, while also offering the same ease of administration as a partnership. Other advantages include:
- Pass-through taxation, which means that owners are only required to report their share of profit or loss on their individual tax returns;
- Flexibility, as there are few if any restrictions on the number of members an LLC is allowed, members can structure management as they see fit, and owners can select one of a variety of different types of profit distribution; and
- Fewer formalities, as LLCs are not required to keep corporate minutes or record resolutions.
Although there are many advantages to forming an LLC, there are a few drawbacks. For instance, LLCs are more expensive to form than sole proprietorships or general partnerships. Ownership is also harder to transfer than with a corporation.
Those who decide to form an LLC, must take the following steps:
- Choose a name for the business, which must end with “Limited Liability Company” or a variation of its abbreviation;
- File the company’s Articles of Organization, which must include the identities of the company’s members as well as the identity of the person designated as the business’s agent for service of process;
- Obtain an Employer Identification Number;
- Create an operating agreement;
- Open a Florida bank account; and
- Pay all necessary filing fees.
Although the process of forming an LLC is simpler than that required for a corporation, those who are considering filing should speak with an experienced business formation attorney before beginning the process.
Call us Today to Speak With an Experienced Business Formation Attorney
Forming a corporation can be a complex and time-consuming process, so if you are considering starting your own business, please contact Clearwater Business Law at (727) 785-5100 to speak with an experienced business formation attorney who can address your concerns.