Choosing the Best Legal Structure for My Business

Business is booming in Florida. According to the United States Census Bureau, new business applications are up 4.3% year over year as of October 2022. Most of these applications were for the formation of small and medium-sized businesses.

If you have plans to start your own business in Florida, there is no better time than now. Coming up with a solid business plan is an essential element of success. Part of that business plan is deciding the best legal structure for your business. In Florida, there are several different legal structures.

Sole Proprietorship

Sole proprietorships are simple entities owned and operated by one individual or a married couple. The law does not distinguish between the business and the owner of a sole proprietorship.

Sole proprietorships are easy to form in Florida. They also give their owners complete control over their businesses. This flexibility can be advantageous when business owners must make and implement decisions quickly. There are also tax advantages to structuring your business as a sole proprietorship. Sole proprietorships pay no separate taxes, and all income is taxed as part of the owner’s tax return.

The most significant disadvantage of a sole proprietorship is that there is no legal distinction between the owner and the business. This lack of distinction means that the business owner is personally liable for all the debts and liabilities of the company. 

A sole proprietorship is the best legal structure for a business that requires a simple and flexible structure and is exposed to only small debts and liabilities.

Limited Liability Company

Limited liability companies (LLCs) combine many of the advantages of sole proprietorships with the liability protections of corporations. LLCs can have many owners, and the law treats the owners and the LLCs as separate entities.

LLCs are a flexible business structure and give owners complete business control. The owners of LLCs can also choose to have taxes pass through to them, meaning profits are taxed only as the owner’s income. Importantly, LLCs provide their owners with the same liability protection as corporations. Owners are not individually liable for the debts and liabilities of the company.

The main disadvantage of LLCs is that the state requires an LLC to pay ongoing fees. LLCs can also be more difficult to sell.

LLCs might be the best legal setup for businesses that require a sole proprietorship’s flexibility and tax advantages but face higher debts and greater liability.

Partnership

Partnerships are associations of two or more people who agree to go into business together. There are three types of partnerships available in Florida–general partnerships, limited partnerships, and limited liability partnerships (LLPs).

General partnerships are similar to sole proprietorships except that there are multiple owners. Limited partnerships are a business structure in which general partners are responsible for day-to-day business management, while limited partners are generally passive investors. LLPs make it so one partner cannot be held personally accountable for the actions of another.

The profits of partnerships are taxed at the individual level when they are distributed to partners. Partnerships can also be relatively easy to form and have low ongoing costs.

The main disadvantage of partnerships is that they lack the liability protections of LLCs and corporations. Even in LLPs, partners are personally responsible for their own debts and liabilities. Partnerships can also become unwieldy when partners have significant disagreements. 

Corporation

There are three types of corporations in Florida: C-Corps, S-Corps, and nonprofit corporations. C-Corps can have an unlimited number of shareholders, but profits are taxed once at the corporate level and then again at the shareholder level. S-Corps are taxed only at the shareholder level but can only have up to 100 shareholders. Nonprofit corporations are not taxed at the federal level but must follow the strict requirements of section 501(c)(3) of the Internal Revenue Code.

The owners of corporations are treated as separate legal entities from the corporation itself. This separation provides a liability shield to shareholders for the debts and obligations of the corporation. Further, corporations make it relatively easy for business owners to raise funding.

Corporations must follow strict rules that govern the management structure of the business and some of the day-to-day operations. These rules make corporations less flexible than LLCs, sole proprietorships, and partnerships.

C-Corps and S-Corps can be the best legal structure for businesses that need to raise funds quickly. Corporations are the most attractive business form for investors.

Nonprofit corporations are only suitable for businesses whose entire purpose is promoting social good.

BrewerLong Can Help

BrewerLong is here to help, listen, and collaborate if you need help choosing the best legal structure for your business in Florida. We are a relationship-focused law firm that can give your business the personalized attention it deserves. Contact BrewerLong today, and we can handle the law so you can focus on business.

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