By Joshua C. Eberle, Esquire
One of the first momentous choices that every new business owner in the state of Florida faces is determining the corporate structure of the business. Florida’s Division of Corporations provides several options for incorporation which will ultimately affect the corporation’s taxes, legal standings, and liability of its stockholders.
The Standard Corporation
The most common corporate structure in Florida is the General Florida Profit Corporation. The General Corporation is a separate legal entity that is owned by stockholders. A General Corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. The stockholders of a General Corporation limit their personal liability to the amount of investment in the corporation. Below are some common advantages and disadvantages of the General Corporation:
- The owners’ personal assets are protected from business debt and liability.
- A Florida corporation’s life extends beyond the illness or death of its owners.
- Transfer of ownership of the corporation can be facilitated by the sale of stock.
- Tax free benefits include insurance, travel, and retirement plan deductions.
- A general corporation is more expensive than a proprietorship or partnership.
- More state and federal rules and regulations are applicable to a General Corporation.
If a start-up involves owners of whom involvement will be limited, a Close Florida Corporation may be more appropriate. Though very similar in many aspects to the General Corporation, a Close Corporation is different in that it limits stockholders to 30 to 50 stockholders. Moreover, many Close Corporations must first offer shares of stock to existing stockholders before selling to new shareholders. To determine if a Standard Corporation or Close Corporation is right for your business contact Gilbert Garcia Group, P.A.
The S Corporation
A second form of incorporation that is rapidly growing in the state of Florida is the Florida S Corporation (Subchapter S). After the Tax Reform Act of 1986, the S Corporation became a highly desirable entity for corporate tax purposes. The S Corporation is not actually a different form of incorporation, but rather is a special tax designation applied for and granted by the IRS. Many small business owners are partial to the S Corporation because it combines many of the advantages of a proprietorship or partnership with the corporate form of business structure. S Corporations are corporations that elect to pass corporate income, losses, deductions, and credits to their shareholders for federal tax purposes.
For example, a standard corporation pays a federal corporate income tax on the profit of its business. If the company declares a dividend, the shareholders must report the dividend as personal income and once again pay tax. S Corporations help avoid this “double taxation” because all income or loss is reported only once on the personal tax return of the shareholder. Meanwhile, the S Corporation’s shareholders are still exempt from personal liability from business debt.
To qualify to file an S Corporation, you must follow the process for filing for this special tax status. First you must form a general, close, or professional corporation. Second, you must obtain the formal consent of the corporation’s shareholders. Once the filing is approved, your company must complete the “Election by a Small Business Corporation” form. It is necessary that the form be signed by all of the company’s shareholders. For more information about filing an S Corporation or obtaining the appropriate forms, Gilbert Garcia Group is ready to serve your business.
The Florida Limited Liability Company (LLC)
Many business professionals believe LLC’s present a superior alternative to corporations and partnerships because LLC’s combine many of the advantages of both. Owners of a Florida LLC have the corporate liability protection from their personal assets from business debt, as well as the tax advantages of Florida S Corporations. However, LLC’s often have a limited lifespan and may require at least 2 members for formation. Additionally, an LLC is not a corporation and therefore does not have stock.
Pursuant to new IRS regulations, if an LLC has satisfied IRS requirements it can be treated as a partnership for federal tax purposes. As such, LLC’s are required to file the same federal tax forms as partnerships and take advantage of many of the same benefits. This can be a technical area of concern for a business, and if you require additional information it is recommended that you contact our law offices for assistance.
Our attorneys have over 30 years of combined experience in corporate and business law, through which they have gained an appreciation for each individual client’s specific needs. For more information visit our website at https://www.gilbertgrouplaw.com/corporate-business-law/.