If you are starting a business in Florida, it is important to understand how the various business tax entities will impact your operations, your taxes, your investor relations and your personal liability. Here is a brief summary of the various types of common business formation entities. For further information about starting, expanding or changing your business, in the Florida Central Gulf Coast region, talk to attorney Robert W. Darnell at The Darnell Law Group in Sarasota. Call 941-365-4950 or send an email to arrange a free initial consultation.
Sole proprietorship: An individual or married couple with no investors, shareholders or operating partners. This is the most common type of business entity for startup businesses. Small businesses with the word “company” in their names are often sole proprietorships. Benefits include management flexibility without the oversight of shareholders, less legal control and fewer taxes. The significant drawback is that the owner is personally liable for all business debt.
Limited liability partnerships (LLP) and limited liability companies (LLC): The partners are responsible for managing the business and share in the profits. Business losses are limited to the amount of money that each partner has invested in the business. Individual partners do not share in the personal liability of a negligent partner.
Professional limited liability company (PLLC): A limited liability sole proprietorship or partnership for licensed professionals, including health care providers, attorneys, accountants and any profession requiring a professional license to practice or do business in Florida.
General partnerships: Two or more shareholders who typically have a hand in the day-to-day operations of the business and add investment, as required. All partners share in the profits, as well as liability for losses and debt. It is very important to have a written shareholder agreement in place regarding expectations for each partner.
Limited partnerships: This type of business entity serves individual investors, investor groups and silent partners very well. Partners share in profits, but losses are limited to the extent of investment. In many cases, the investors are not involved in the operations of the business.
Corporation (for profit or nonprofit): An individual starting a corporation becomes an employee of the corporation, although he or she may hold investor shares. The benefits include tax savings and increases in share prices. Disadvantages include less personal control over operations and direction of the company. Upon filing for incorporation, the business will be considered a C corporation and may remain so as long as the shareholders desire. When/If the shareholders file an IRS Form 2553 for special pass through taxation, the corporate structure turns into an S corporation for federal tax purposes.
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Other types of business entities include joint ventures, trusts and tenants in common. Mr. Darnell is ready to help you make the right decision regarding the successful start up and operation of your business.