When starting a business, you must decide what form of business entity to establish. Establishing a business structure is a first step to obtaining the required government permits and licenses. Your business entity determines the amount of regulatory paperwork you have to file, your personal liability regarding investments into your business, and the taxes you have to pay. It is recommended that you consult with an accountant or attorney when deciding on legal business structures, such as a sole proprietorship or a limited liability company.
Determine the Legal Structure of Your Business
Common Types of Business Entities
- A business owned and managed by one individual who is personally liable for all business debts and obligations.
This is the simplest business entity to set-up and dissolve, and generally the least costly. However, sole proprietors have unlimited liability and are responsible for all business debts. No state filing is required for sole proprietorships, however if you choose to assume a fictitious name for your business, then you must register with the Florida Secretary of State.
Partnership - Two or more people share ownership of a single business
Each partner contributes money, labor, and/or property; and each partner shares the profits and losses on their individual tax returns. Partnerships can be either general or limited. In a general partnership, at least one partner has unlimited liability. In a limited partnership, there are limits to the personal liability of each partner.
Corporation - A legal entity owned by shareholders, also called C-Corporation
Corporations can provide their owners greater protection from personal liability. Articles of Incorporation must comply with the "Florida Business Corporation Act" (Chapter 607, Florida Statutes). Required fees and taxes must be paid. There are two major types of corporations: “C” corporations and “S” corporations. The “C” Corporation can be owned by an unlimited number of shareholders, either as individuals, partnerships, trusts or other corporations. As the legal entity, the corporation pays tax on net earnings, and the shareholders pay personal tax on any dividends. Shareholders cannot deduct corporate losses from their personal returns.
S Corporation - A special type of corporation created through a tax election
The "S" Corporation provides the same protection from personal liability as the C Corporation, but it has elected to treat corporate profits as personal income, taxable to the individual shareholders. This avoids the double taxation that exists in the “C” Corporation. S Corporation election forms have to be filed with the Department of State.
Limited Liability Company (LLC) - LLC formation is a relatively new, hybrid-type of legal company structure
The limited liability company provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The LLC formation articles of incorporation (LLC Chapter 608, Florida Statutes) must comply with the "Florida Limited Liability Company Act."
Non-Profit - An organization engaged in activities of public or private interest that is not motivated by making a profit. Some non-profits are exempt from paying federal taxes.
Cooperative - A business or organization owned by and operated for the benefit of those using its services. Cooperatives are not a legal structure.