Are you starting a business in Florida, but are not yet sure about what kind of structure to use?
One of the things you can do to make a decision is to compare business entities in the state to determine which works best for you. Limited liability companies (LLC) and corporations have their own pros and cons.
When comparing business entities in Florida, remember that it is important to keep the characteristics that matter to you the most in mind.
An Overview of the Florida LLC
To form a Florida LLC, you need to file Articles of Organization with the Department of State. If you are considering forming an LLC, you should know the pros and cons. Here is a brief look at each:
- Privacy: One of the advantages of forming an LLC is privacy. An anonymous LLC can be formed in Florida, but you cannot form an anonymous corporation.
- Informal: There are far fewer administrative requirements when forming an LLC. It is less formal, which means that you do not need corporate officers, a board of directors, annual shareholder meetings, etc.
- Pass-through taxation: With LLCs, profits are reported on your individual tax return. This means that you are not taxed twice, which is wonderful for any business. (But you are taxed in other ways, however, that is another topic.)
- Self-employment tax: If you have an LLC, you will have to pay taxes on all the profits you make, unless you make the choice to be treated as an S-corp. Keep in mind that these taxes are generally higher than the tax rate for corporations.
- Limited life: The life of an LLC is limited compared to a corporation. You need to keep in mind that your company will be dissolved when a member of your LLC departs – that is, unless you specifically address this issue in your Operating Agreement.
An Overview of Florida Corporations
To form a Florida corporation, you need to file Articles of Incorporation with the Department of State. Like LLCs, corporations have their advantages and disadvantages. Here is a quick look at the pros and cons of establishing a corporation in Florida:
- Legal precedent: Compared to LLCs, there is far more law when it comes to corporations. This makes it a lot easier to understand exactly what your business can and cannot legally do.
- Re-investment: The tax structure in a corporation allows you to invest profit back into your company, if you wish to. If used strategically, this is a function that can aid in reducing your tax burden.
- Benefits:> In corporations, talented or valuable employees can be retained by offering them an array of benefits. These benefits, such as stock options, are tax deductible.
- Formal Requirements: Corporations have an intricate structure. There is a wide range of record keeping and reporting requirements – and these requirements can be not only cumbersome, but incredibly costly as well.
- Double Taxation: Corporations are required to pay an entity tax. You need to remember that, in addition to this, the shareholders in a corporation have to pay taxes on the dividends that they receive.
Which is Best for My Business?
“Which is the right entity for my business?” This is one of the first questions asked by new business owners. The answer is this: It depends. For a number of reasons, this is a complicated question and not a decision you should make lightly. It is also one well worth answering because if it is done right, establishing a corporate entity will give you three advantages:
- Your liability is limited
- Your tax exposure is limited
- Ownership can be divided
To decide whether you should form a corporation or an LLC for your business, it is critical to consider the pros and cons of each entity carefully, especially those of the operations and the legal and tax aspects.
In order to determine the best fit for your business, it is a good idea to work closely with both your CPA and lawyer. Depending on the type of business you want to set up, they can help you weigh all the options and then decide if a corporation or an LLC would be the better selection for you.
If you have any questions regarding establishing a business entity in the state of Florida, contact the Law Offices of Peter M. Feaman, PA. Call 561-734-5552 to schedule a consultation to discuss your business and its needs.