When starting a new company in Florida, you must choose the right legal structure for your business. This choice affects the company’s legal liability, taxes and operation.
Understanding the common business entities allows you to make an informed decision.
Corporation
When you form a corporation, you create a legal entity separate from the business owners (known as shareholders). Corporations provide limited liability, protecting the personal assets of shareholders from business debts and liabilities.
A corporate structure also gives you the ability to sell shares in the company to raise capital. On the downside, the IRS taxes corporations at the business level and taxes shareholders on dividends they receive from the business. Other structures avoid this double taxation.
Partnership
In a partnership, two or more individuals manage and operate a business by agreed-upon terms and objectives. You can create a partnership easily, but this structure does not provide liability protection. However, it does prevent the double taxation experienced by corporate shareholders.
Limited liability company
Commonly called an LLC, a limited liability company combines elements of a partnership and a corporation. It provides limited liability protection for its members while allowing flexible management and taxation.
Individual owners (known as members) pay LLC taxes on their tax returns, a strategy called pass-through taxation. They bypass the double taxation that affects corporations. Florida has more than half a million LLCs, making it by far the state’s most common business structure.
S corporation
You can set up an S corporation if you prefer the corporate structure but want to benefit from pass-through taxation. S corps also limit your liability. However, you will have to follow specific ownership and operational rules, such as limits on the type and number of shareholders.
Each structure has its advantages and disadvantages. When making your decision, align your choice with your business goals and operational needs.
