Corporations Choice

Guide to Setting Up a Business in Florida

By Maximilian J. Schenk, Esq.

This article is intended for informational purposes and does not constitute legal or tax advise. Prior on deciding on a particular business form, it is strongly recommended (particularly with foreigners seeking to do business in Florida) that an attorney and tax advisor are consulted to help determine which entity may be the most suitable choice for any given enterprise.

Florida has a variety of business forms that are available to conduct business in the State. Choosing a particular form will depend on many considerations and the specific business purposes desired, as each form has distinct legal and tax consequences and registration and record-keeping requirements. Below is a brief summary as to the general business entities available in Florida.

 

I. Proprietorship

Background: This is a form of business in which only one individual owns and operates the business. As a result, the sole proprietorship is considered one and the same entity in terms of taxation and liability concerns.

Formation:

(1) The sole proprietorship can be formed without having to file any documents with the State of Florida.

Operation:

(1) No particular formalities or record-keeping requirements are required by law.

Benefits:

(1) Formation. Easy, inexpensive and quick to form, as no documents need to be filed with the Florida Division of Corporations to form the business.

(2) Formalities. Relatively little or no record-keeping and regulatory formalities exist in the operation of the business.

(3) Taxation. Only requires one income tax return on the individual level, as the sole proprietorship and owner are considered to be one and the same legal entity.

Limitations:

(1) Liability. Owners are personally liable for all business debts, and creditors generally (with the exception of certain homestead law protections available to home owners with primary residence in Florida) can reach the owner's personal assets to satisfy any indebtedness.
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(2) Lack of anonymity, as ownership is a matter of public record.

II. Partnerships

 

A. General Partnership

Background: A general partnership can be formed absent any registration with the State of Florida, and is established by operation of law whenever two or more persons join together and devote their money, resources, and skills to a common business venture in which each person shares in the profits and losses of the venture. The partnership entity and partnership assets are both viewed as separate from the owners (partners). Any capital contribution to the partnership is deemed to belong to the partnership.

Formation:

(1) The only requirement to forming a partnership is that two or more people engage in business together and devote resources and agree to share the profits and losses of the business engagement.

(2) Owners of a partnership may file a partnership registration statement with the Florida Department of State, Division of Corporations, if the partners have reason to make the existence of the partnership a matter of public record (for example, for holding title to real estate). The filing fee for the partnership registration statement is $50.00.

Benefits:

(1) Cost. Can be formed in a short time and with little expense.

(2) Formalities. No particular formalities or record-keeping requirements are required by law.

(3) Number and type of owners. There are no limitations on the number of owners.

(4) Management and control. The partners manage the partnership. Generally, all partners can act on behalf of the partnership and enter into contractually binding agreements.

(5) Taxation. Only one level of income tax exists, as the partnership income is not taxed to the company, but only to the individual partners.

Limitations:

(1) Liability. All partners are fully liable for the debts and obligations of the partnership.

Practice Pointers:

(1) At time of formation, partnerships should have detailed partnership agreements in place, which, among other things, address issues such as the rights and responsibilities of each partner, management tasks, the amount of capital contribution each partners will make, how profits and losses will be allocated, events that terminate the partnership, and what happens if one partner dies or wants to leave the partnership.

III. Corporations

Background: A corporation is a business form that is specifically created and regulated under Chapter 607 of the Florida Statutes. The corporation has a separate legal existence from its owners (shareholders). The corporation can only be created by filing Articles of Incorporation with the Florida Division of Corporations. Corporations consist of two varieties, (a) the C-Corporation, which is the standard corporation, and (b) the S-corporation, which procedurally is identical to the C-Corporation, but viewed differently for tax purposes. The distinct legal and tax implications of both types of corporations are discussed in more detail below.

A. C-corporation

Formation:

(1) A corporation is formed by registering Articles of Incorporation with the State of Florida, Division of Corporations. The current initial registration fee is $70.00 plus $8.75 if a certified copy of the registration is requested (which is useful for opening bank accounts). The Articles of Incorporation at a minimum must contain the following:

a. The name of the corporation must have at the end the words "Corporation", "Incorporated", "Inc.", "Corp.", or "Company".

b. The principal and mailing address of the corporation must be listed.

c. The total number of shares that the corporation is authorized to issue.

d. A registered agent with principal residence in Florida must be designated, and the registered agent's name and street address and signature of acceptance must be indicated.

e. The name and street address of the incorporator must be listed.

f. The incorporator must sign the Articles of Incorporation.

 

(2) Upon incorporation, the incorporators and/or initial directors of the corporation should meet to, among other things, (a) ratify the company's incorporation as set forth in the Articles of Incorporation, (b) appoint a board of directors and officers, and (c) adopt bylaws, which set forth the rules and regulations of the corporation. Organizational minutes should be prepared and kept in the company corporate book.

(3) The corporation must have a Board of Directors with at least one director. The corporation may opt to have more directors and officers (such as President, Vice President, Treasurer and Secretary). Furthermore, one person can hold any number of positions at the same time.

Benefits:

(1) Liability is limited, as the shareholder/owners are not personally liable for the corporation's debts and obligations, except to the extent of their their capital contributions to the company.

(2) The C-corporation can have an unlimited number of shareholders.

Limitations:

(1) Formalities. In order to limit liability, good and regular record-keeping, annual meetings and other formalities must be observed.

(2) Double taxation. First, the corporation is taxed on its corporate income. Second, any corporate income that is distributed to shareholders (in the form of dividends) is taxed to the shareholders as personal income.

(3) Operation. The corporation must file a Uniform Business Report each year and pay the applicable renewal fee to remain active. The current renewal fee is $150.00. The Division of Corporations each year will send out a renewal notice to the corporation's Registered Agent.

 

B.. S-corporation

Formation:

(1) The filing requirements are the same as for a standard corporation (C-Corporation).

(2) To obtain the S-corporation status, an election must be made by filing a Form 2552 with the Internal Revenue Service.

Benefits:

(1) Taxation. Avoids double taxation. An S-Corporation is treated as a partnership for tax purposes, meaning that corporate income is not taxed to the corporation, but passes through as personal income to the shareholders on their individual tax returns.

(2) Cost. Relatively inexpensive to form and maintain. Filing fee is $70.00, and annual renewal fee is $150.00.

 

Limitations:

(1) Number and type of owners. Cannot have more than 75 shareholders. Nonresident aliens may not be owners. Owners can only be individuals, bankruptcy and decedent estates, certain trusts and certain exempt organizations under Section 501(c)(3) of the Internal Revenue Code.

(2) Capital structure. Can only have one class of stock.

(3) All shareholders must consent in writing to obtain the S-corporation election.

 

IV. Limited Liability Company

Background: A Limited Liability Company ("LLC") is a business entity created under and regulated by Chapter 608 of the Florida Statutes. The LLC is a combination of a corporation and partnership in that, on the one side, it limits liability of its members to their capital contributions (as in a corporation) and, on the other side, it is treated as a partnership for tax purposes, which means it can avoid double taxation as the LLC's income passes through to the owners (members)(as in a partnership).

The LLC is owned by the members and each member can manage and bind the LLC (as in a partnership), unless the members agree to designate managers to run the business of the LLC (similarly, as in a corporation). The LLC must designate for formation and tax purposes, whether the business is to be run by members (member-managed) or by managers who are not members (manager-managed).

Formation:

(1) The LLC is formed by registering Articles of Organization with the State of Florida, Division of Corporations. The current initial registration fee is $125.00, and for or an additional $25.00, the Division of Corporation will issue a certified copy, which is often required to open bank accounts, obtain financing, and for certain licenses. The Articles of Organization must contain the following:

a. The name of the company must end in the words "limited liability company", "L.L.C.", "L.C.", "LLC" or "LC".

b. The principal and mailing address of the LLC must be listed.

c. A registered agent with principal residence in Florida must be designated, and the registered agent's name and street address and signature of acceptance must be indicated.

d. At least one member or authorized representative of the member(s).

e. Unless otherwise indicated in the Articles of Organization, the effective date of the LLC will be the date of filing with the Division of Corporations. If another effective date is desired, then it must be within five (5) days prior to or not more than ninety (90) days from the actual filing of the Articles of Organization with the Division of Corporations.

Benefits:

(1) Limited liability. Affords limited liability in that members are not held personally liable for company's debts and obligations, but are only liable to the extent of their capital contributions to the company.

(2) Management. Management and ownership is flexible.

(3) Cost. Relatively inexpensive to form and maintain. Filing fee is $125.00, and annual renewal fee is $50.00.

(4) Taxation. No double taxation. As with a partnership and S-corporation, the LLC's income is not taxed at the corporate level, but passes through to the members. The LLC must file Form K-1 tax return each year with the International Revenue Service.

(5) Formalities. Requires much less formalities than a corporation (e.g. there is no need for annual meetings and record-keeping, although it is highly advisable to do so for all major decisions).

(6) Operation. The LLC must file a Uniform Business Report each year and pay the applicable renewal fee to remain active. The current annual renewal fee is $50.00.

(7) Number of owners. There are no restrictions as to the number of owners (members) the LLC may have.

Limitations:

(1) Strict record-keeping formalities required.

(2) Ownership is harder to transfer than in a corporation