Florida LLC or Corporation
Florida is generally a business-friendly state. The procedures and requirements for starting a business are straightforward for owners who have a basic understanding of how organizational structures influence business operations.
Factors that Influence Choice of Business Entity
To make the appropriate choice whether to incorporate as a C, S or a limited liability corporation (LLC), determine the number and type of business owners. The type of corporation will define how the business entity and owners are taxed. Owners’ personal liability for business outcomes will also depend on the type of corporation.
Corporate Structures Defined
C corporations are separate and distinct from owners, shielding owners’ assets from corporate creditors. In a C corporation, income, expenses and taxes accrue to the corporation and not the owners. When corporate profits are distributed as dividends, owners are personally liable for income taxes on the dividend. Owners or shareholders who work for the corporation are paid salaries, which are also taxable as personal income.
An S corporation is created by initially registering as a C corporation prior to filing an Internal Revenue Service form within the required time frame to elect S corporation status. Taxes, profits and losses are reported on the owners’ tax returns.
An LLC is similar to an S corporation in that income and expenses of the business are reported on the owners’ personal tax returns. The LLC structure provides personal liability protection for owners.
Comparison of LLCs, C and S Corporations
S corporations and LLCs are suitable for small businesses and start-ups because of the tax advantages. However, S corporations are subject to the same reporting requirements as C corporations while LLCs avoid this paperwork because profit and loss distributions are governed by the LLC agreement.
LLC owners report profits and losses on their personal tax returns, offsetting taxable income against liabilities. With C corporations, losses are passed on to owners in terms of lower dividends, but owners or shareholders may not report this as a loss on personal tax returns.
Of the three entities, only C corporations can issue different classes of stocks with different rights and valuations. In an LLC, ownership is defined in units so that shareholders have equal rights. C corporations can create stock option plans for employees that will shield recipients from taxes on the distribution of shares.
Corporate Structure for Florida Businesses
S corporations and LLCs are the preferred type of structure for Florida’s small-to-medium businesses because of the benefits of pass-through taxation. Record keeping and reporting are manageable for startups. However, when the business goes into expansion mode where investors and stock options for employees are required, converting to a C structure will ease the transition to differentiated ownership through different types of stocks.
How to Form a Corporation in Florida
Choose a corporate name, and prepare and file the company’s Certificate of Incorporation with the Florida Department of State Division of Corporations. Submit the form online or through postal mail with the filing fees. Florida law requires the appointment of a registered agent who will accept service of process for the corporation.
Corporations will need to prepare corporate bylaws, appoint a board of directors and convene a meeting. The corporation issues stocks to shareholders with the stock valuation determined by the Board.
How to Find a Registered Agent
Florida’s Division of Corporations may provide a list of registered agents that entrepreneurs can reference to select one. Many registered agents are listed in online databases. As an alternative, the Board may appoint a registered agent from among its ranks.