Florida Business Formation Basics
By Josh Roberts
I was recently featured as a guest on the “How to Business” vlog hosted by Frederick Weiss where we discussed “How to Legally Start a Business.” In addition to the video (which can be found here), I thought it would be helpful for Florida entrepreneurs and business owners/hopefuls to address portions of our discussion here.
Why is it important to set up a business the right way, the first time?
There are two high-level reasons for establishing a business correctly as soon as possible; External Benefits and Internal Benefits.
External Benefits – Legitimacy; Liability Limitation and Asset Protection:
- Legitimacy: Depending on the type of business that you form, i.e., limited liability company, corporation, etc., you can instantly add legitimacy to your company through proper formation. For example, by registering your business with Florida’s Division of Corporations, lenders and banks are able to verify creditability and facilitate loans; vendors are able to look up your officers and authorized representatives for contracting purposes; potential acquirors are able to evaluate the business’s value in an M&A setting, etc.
- Liability Limitation Asset Protection: Again, depending on the type of business that you form, you may be entitled to liability and asset protection. The law recognizes certain business types as being their own legal entity, separate and apart from the underlying owner(s). The sooner you can attain that legal recognition (that your business is separate from you), the sooner you can avail yourself of protections offered under Florida law.
Internal Benefits – Establishing the Rules: This benefit is often overlooked in the excitement and frenzy of going to market, but how do you plan on working (operating) with your business partners? Who get paid what amount and how often? Who has the authority to negotiate and enter into vendor agreements? What decisions require additional permissions and how often, where, and when will such decisions be made? What are the internal rules for operating your company? By establishing your company correctly with the requisite internal agreements (Operating Agreements, Bylaws, Compensation Contracts, etc.), business owners are taking steps towards clarity and success. The difficulty of litigating a business dispute can become exponentially greater (and more expensive) where agreements are not negotiated, memorialized, and signed in writing.
What business types are there and which one could be right for you?
The “Big 4” business types are sole proprietorships, partnerships, limited liability companies and corporations.
- Sole Proprietorship – Sole proprietorships are unincorporated businesses that are owned and operated by one person, often using a fictitious name or d/b/a (doing business as) for business purposes. Owners can use their own social security number or apply for an EIN, but either way, all taxes go on the owner’s personal tax return on their Schedule C. Generally, sole proprietorships offer no liability or asset protection and an additional downfall is it can be difficult to market, sell, and/or obtain a loan for this business type.
- Partnership – Perhaps an oversimplification, but partnerships are similar to sole proprietorships, but with more people. In a general partnership, two or more people contribute to share in both profits and liability. In Florida, there is no requirement for partnerships to register with the Division of Corporations or operate under a formal, written agreement. Partnerships have downfalls and limitations similar to sole proprietorships, with the additional exposure of partners being jointly and severally liable for actions of other partners.
- Limited Liability Company (LLC) – I like to think of LLCs as the “Goldilocks” of business formations in Florida; for most businesses, this formation type is “just right.” LLCs require a bit more work in the business formation process than sole proprietorships and partnerships, but they offer more benefits in the form of flexibility for tax treatment and additional liability and asset protection. LLCs must be registered with Florida’s Division of Corporations and Articles of Organization must be filed with the state at the time of formation, along with a filing fee of approximately $125. Not expressly required by the Division of Corporations, but highly recommended by Roberts Law, are Operating Agreements and Compensation Agreements (see “Internal Benefits,” above). Once properly formed, LLCs offer multiple tax election possibilities (single-member LLCs can be taxes as a sole proprietorship, while multi-member LLCs can make C Corp. or S Corp. elections), while offering business owners asset protection from liability associated with financial obligations, judgments, and other problems their business might experience.
- Corporations – Corporations are similar to LLCs, but require more formalities while offering less tax treatment flexibility. For formation, Florida requires Articles of Incorporation and Bylaws be filed with the Division of Corporations, along with a filing fee of approximately $70. At the time of writing this article, Florida has a 5.5% standard corporate tax rate, with exemptions potentially available, along with an alternative minimum 3.3% tax rate. Corporations offer liability and asset protections similar to LLCs.
Roberts Law is here to help with your Florida business formation needs. We offer flat fee options that can include (1) state required filing fees; (2) public and internal business governance documents (Articles of Organization/Incorporation, Operating Agreements, Bylaws, Compensation Agreements, etc.); (3) Registered Agent designation; and/or (4) annual reports (filed annually after formation).
Josh Roberts Kelly Roberts
josh@joshrobertslaw.com kelly@kellyrobertslaw.com
(941) 315-4058 (941) 402-3831
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction or the jurisdiction applicable to your issue/matter. No information contained in this post should be construed as legal advice from Roberts Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
