Choosing the right business entity is only the first of a long line of decisions you’ll make when starting a business. But it’s a decision that affects every part of your company’s future. While the process sounds daunting, some research and experienced legal advice can go a long way toward getting your business off to a good start.
In Florida, you can choose from the following types of business structure:
- Sole proprietorship
- Partnership (general or limited)
- Limited Liability Company
- Corporation (C or S)
When choosing the right business entity, consider the following factors.
Is Personal Liability a Concern?
Sole proprietors generally have the least protection. If sued, a sole proprietor’s personal property could be at risk.
Corporations and limited liability companies are considered separate legal entities. In other words, the corporation and LLC can be sued, but the individual owners are usually safe. There are exceptions to this that your business lawyer or corporate counsel can explain.
In a partnership, liability for the partnership’s actions is typically shared between the parties. The company’s partnership agreement usually includes more details about this issue.
Which Business Entity Offers the Best Tax Structure?
Tax treatments vary widely based on the business structure. When choosing the right entity, make sure you choose one that offers the tax treatment you prefer.
For example, corporations pay taxes on their earnings. So do the individual shareholders. This type of business entity results in what is referred to as double taxation.
Income earned by LLC owners, partners, and sole proprietors is considered personal income and is taxed as such.
Do You Need Flexibility that Allows for Growth?
If your company’s business plan includes expansion, you need to choose the right business entity for things like raising capital. Generally, sole proprietorships might find lenders hesitant to extend credit. Choosing the correct business entity involves what you need today and in the future.
Would You Like to Minimize Startup and Ongoing Administrative Costs?
Forming some entities costs more than others, primarily because of the paperwork involved. Sole proprietorships require very little in the way of government paperwork and fees. On the other hand, corporations file several documents during formation, then have additional paperwork requirements throughout the corporation’s life.
How Much Control Do You Want to Have?
A sole proprietorship does not have to coordinate with a board of directors or partners. However, there’s also no one to share the burdens of operating a business. A sole proprietorship might work for someone who truly wants to go it alone.
Limited liability companies in Florida can exist with only one member. As with the sole proprietorship, that member controls everything. LLCs with more than one member would have to consider whether the LLC is the proper structure.
Partnerships should run according to their partnership agreements. As a partner, you might have more or less control over the business than your other partners. However, you would still be accountable to them.
Contact Us If You Need Help Choosing the Right Business Entity.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.