One of the most crucial decisions you will make concerning your new business is what legal entity to adopt. The type of business entity you select can have significant consequences for your personal liability, control over the business, level of management, your ability to grow and expand, and the level of taxes you pay, both federally and in state.
The following is a brief overview of some of the business entities available to you in Florida. This list is not intended to replace the guidance of a business formation attorney. A corporate formation attorney will examine your individual situation and offer expert advice as to the best legal entity for you. While no replacement for an attorney, this primer will arm you with the knowledge you need to better understand your business formation options.
- Sole Proprietorship—this is the most common entity for home-based businesses. While this entity has the fewest legal formalities, it also offers the least amount of legal protection. A sole proprietorship typically involves one owner who also operates the business. This entity offers ease of set up and taxation. You will be personally liable if sued, however, and you may have trouble growing the company later if you wish to take on investors.
- Limited Liability Company (LLC)—LLC’s have become extremely popular in recent years, and the advantages of such entities make it easy to see why. LLC’s are hybrid entities that combine the benefits of corporations and partnerships. Your personal assets are protected in the case of a lawsuit if you use an LLC. This entity offers flexibility in both taxation and membership. It can, however, be tricky to offer stock options to investors and there is a lot of paperwork involved, often necessitating the assistance of an attorney.
- Partnerships—partnerships involve one or more individuals who share profits and losses of the business. There are two main types: general and limited. A general partnership requires the partners manage the company together and all partners assume responsibility for debts. In a limited partnership, on the other hand, limited partners provide investments but have no control over the company. Partnerships can be costly to set up because of the multiple parties involved and sometimes differing roles of the partners. In founding a general or limited partnership, you should consider what each partner is investing in the company, their responsibilities, possible buyout plans, and disagreement resolutions. While partnerships allow for collaborative business growth, they can also leave you liable in the event of a lawsuit.
- Corporations—a corporation is often set up for a larger entity, generally a business that involves shareholders or investors. Individuals are not generally personally liable for the debts of a corporation. Corporation types include C-corporation and S-corporation. Raising capital is easy with a corporation and there are some tax benefits. However, forming a corporation can be costly and involve a massive amount of paperwork.
As a small business developer just starting out, you have numerous options at your disposal as you consider forming your business entity. A corporate formation attorney will thoroughly examine your intended business model and research all potential benefits as well as drawbacks to using a certain legal entity. After much discussion and study, your business attorney will advise you as to which corporate entity is best.
Start your Florida small business off the right way—contact Scott Law Group, PLC today. Our dedicated firm of business professionals will ensure you select the correct business entity which will lead you to years of success. Call us at (727) 754-5001 to schedule a free consultation.