Starting a business in Florida is a lot like living in Florida: exciting, full of potential, and occasionally accompanied by surprises that make you question your life choices
If you have your own business, or are considering starting one, you’ve probably heard accountants, financial advisers or fellow business owners suggest that you should run your business through an entity. While it’s true that a more formal business setup can help separate your business risks from your personal life, there are still important nuances to keep in mind.
If you start doing business without forming an entity, Florida automatically treats you as a sole proprietor. If you go into business with another person, Florida treats your business as a general partnership. These arrangements are simple, cheap, and require no filings with the state.
Unfortunately, they also offer the same level of protection against liability as an umbrella in a hurricane. If someone sues your business, they’re really going after you—your house, your car, your boat, your favorite team memorabilia. Sole proprietorships or general partnerships work for smaller, low-risk ventures—but you quickly realize you need something sturdier, such as an LLC, a corporation, or something else.
LIMITED LIABILITY COMPANY (LLC)
An LLC is an entity established by simply registering with the state. It gives you liability protection, meaning personal assets stay separate from business debts. It’s flexible, easy to manage, and doesn’t require you to hold annual meetings, maintain mountains of paperwork, or follow strict corporate formalities. You don’t even need to file a separate tax return for your LLC as its income taxes pass through to you by default. You can, however, elect to be taxed as a corporation. This allows you to be more strategic about self-employment taxes (a combined 15.3% Social Security and Medicare tax).
Although LLCs that do not make a corporate tax election must pay self-employment taxes on all net business earnings, LLCs taxed as corporations only need to pay a 15.3% payroll tax on the owner’s W-2 salary. This difference can create meaningful savings.
C-CORPORATION (C-CORP)
If your business will involve other investors and you want to raise venture capital to become the next tech unicorn, you’re probably looking at a C-Corporation. This is an entity with the classic corporate structure— the one with shareholders, bylaws, board meetings and enough formalities to make you nostalgic for the simplicity of your LLC days.
C-Corps are ideal for high-growth companies and are the standard for startups seeking outside investment because they allow unlimited investors, multiple classes of stock and straightforward equity issuance. Just remember: C-Corps face double taxation, meaning the corporation pays its own income taxes and then you (as the owner) pay taxes again on dividends.
S-CORPORATION (S-CORP)
In contrast to LLCs and C-Corps, an S-Corp is actually not a type of entity. It is a tax election you make with the IRS to pass corporate income, losses, deductions and credits through to you for federal tax purposes. Both LLCs and corporations can elect S-Corp status. But S-Corps come with rules: limited types of eligible owners, a cap on the number of shareholders and strict pro rata distribution requirements.
.HOW TO CHOOSE
So how do you choose? Start by considering your goals. Do you want liability protection? (Hint: you do.) Do you plan to bring on partners or investors? Do you want tax simplicity or strategy? How big do you expect this business to grow?
If you want to explore more specialized or creative structures, there are other less-common entity types, like limited partnerships, limited liability partnerships, limited liability limited partnerships, professional associations, and even not-for-profit corporations.
Choosing the right entity type for your business is one of the most important early decisions you’ll make, and unlike your first apartment in college, you can’t just walk away when you see a palmetto bug.
ABOUT THE AUTHOR
Feibai Ma’s practice focuses in the areas of bankruptcy and corporate law. Her bankruptcy experience includes representing Chapter 7 trustees as well as creditors in Chapter 7, Chapter 11and Chapter 13 cases. In her corporate practice, she mainly handles outside general counsel matters—including contract negotiation, mergers and acquisitions, due diligence, regulatory compliance, and dispute resolution. Feibai earned her J.D. from the University of Florida Levin College of Law. Originally from Nanjing, China, prior to law school, Feibai worked in Europe as an EMEA region business developer. She is an active member of the Orange County Bar Association’s Young Lawyer Section and serves on the board of the Greater Orlando Asian American Bar Association.
Feibai Ma, Esq.
PHONE: 494-423-4246
EMAIL: FMa@whww.com
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Founded in 1931, Winderweedle, Haines, Ward & Woodman, P.A. is the oldest law firm in Central Florida, as named by the Orlando Business Journal. The firm offers a full range of services, including legal representation in business law, litigation and appeals, bankruptcy, banking, insurance law, estates and trusts, government, property rights, and real estate, as well as other areas.