Types of Businesses

Sole Proprietorships

Sole proprietorships are the easiest business to form. This is a business that is operated by a single individual and requires no filing of paperwork allowing the business to begin immediately and without any delay or startup expenses. The problem with sole proprietorships are that they do not offer any protection for the business owner. If liabilities arise during the course of business, all of the owner’s personal assets can be subject to the business’s creditors. Today, sole proprietorships are only appropriate for small business operations that have little to no business risk. Even if you plan to start a small business out of your home, other business formations such as an LLC will still remain cost effect, but offer significantly greater protection for your personal assets.

General Partnerships

General partnerships are formed similarly to sole proprietorships except that they are formed with two or more people. They may be created by either a formal agreement between the partners or even just a simple handshake. While easy to start without any paperwork, general partners also come with substantial risks. Not only is a partner personally liable for their own actions, but they are liable for the actions of their partner as well. Similar to sole proprietorships, partners pay taxes on their share of the earnings out of their personal tax returns.

Joint Ventures

A joint venture is a legal enterprise that takes the form of a partnership, between either individuals or businesses, with the purpose to undertake a specific transaction or goal that is for the mutual gain of the parties. Many times a separate business entity is created in order to carry out the project of the joint venture, but it is not required. Typically after the specific undertaking has been accomplished the joint venture dissolves, though many joint ventures have a continuing purpose that keeps them operating indefinitely. While joint ventures can be created with a simple handshake, it is best to have a formal joint venture agreement to explicitly state the terms of the joint venture in writing. If the joint venture is expected to be in existence for longer than a year, the agreement may be required to be in writing in order to satisfy the Statute of Frauds. While everything may begin to go smoothly in the ‘honeymoon phase’ of a joint venture, but far too many joint ventures end in litigation between the partners. Even if the partnership is amongst life-long friends, a simple joint venture agreement can ensure the duty of loyalty between the partners and establish parameters in case any partner breaches that duty or acts illegally or immorally. Click here to speak with the Finity Law Firm about creating a joint venture agreement for you today.

Limited Liability Partnerships

LLPs are very similar to general partnerships, except that the partners receive limited liability protection ie not liable for the debts of the partnership (though they would be liable for personal misconduct). LLPs are very popular with licensed professionals such as accountants, architects, contractors, dentists, doctors, or lawyers. LLPs have a number of requirements including, but not limited to, filing a statement of qualification with the state, indicating LLP status in the name of the partnership, and filing an annual report. For further information on Florida’s requirements with LLPs click here. 

Limited Partnerships

LPs are different from general partnerships or LLPs in that there are two different types of partners: general partners and limited partners. In Florida, there must be at least one general partner. The general partner still conducts normal partnership duties such as managing the daily operation of the business and accepting liability for debts and claims. The limited partner, however, has no liability in excess of their capital investment. A special exception in Florida also allows a limited partner to participate in management without incurring liability for partnership debt either. These advantages in Florida make a LP attractive to investors who are looking to limit their exposure to the business. Generally, income tax is treated similar to that of a general partnership. LPs required a certificate of limited partnership to be filed with the state, discuss with a business attorney how they can help establish an LP for your business today.

Limited Liability Limited Partnership

A LLLP is very similar to an LP, except that the general partner also enjoys limited liability protection as well. This makes LLLPs the preferred form of limited partnerships in the state. It should be mentioned that while general partners enjoy greater liability protection that general partners in LPs, lenders do have the ability to contract around this right prior to extending credit. Whether you are looking to form an LLLP or are looking to convert a LP into a LLLP, speak with a business attorney today to discuss your business formation needs.

Limited Liability Companies

An LLC provides the liability protection of a corporation, but the tax advantages of a partnership making it one of the most popular forms of business formations. LLCs provide pass through taxation, just as a partnership, allowing members to report their profits or losses on their individual tax returns. Pass through taxation is one the greatest advantages of avoiding double taxation incurred with most corporations. Further, LLCs provide a great range of flexibility when establishing the management of a company. There can be an unlimited number of members, a variety of compensation structures, as well as the possibility of subsidiaries (at least in Florida). The disadvantages of an LLC include higher startup costs than a sole proprietorship or general partnership as the member will need to file the articles or organization with the state, however this is an expense that is generally deemed advisable to almost all companies to receive limited liability protection.

Corporations

This type of formation, generally called a “C Corporation,” is generally used by the larger companies due to its startup costs, tax structure, and strict formalities requirements. It is still used however as it is the only structure that allows for an unlimited amount of stock as well as different classes of stock. C corporations are owned by its shareholders who must elect a board of directors who make business decisions on behalf of the company. A C corporation is taxed as a separate entity which requires filing a corporate tax return. Shareholders are then taxed again on what they are paid from the corporation (hence, double taxation). While Florida does not have any personal income state tax, the same cannot be said about a corporate income tax as the state currently charges 5.5% as a business tax (with some exceptions, of course). Since corporations are separate entities that can both sue and be sued, shareholders are not personally responsible for the liabilities of the corporation. C corporations formalities include the filing of a certificate of incorporation, an appointment of a registered agent, annual board of directors meetings, as well as annual state reporting, to name a few.

S Corporations

A Florida corporation can become an S Corporation after all shareholders have consented in writing and a Form 2553 is filed with the IRS. The main advantage of forming an S corporation over a C corporation is that an S corporation is not taxed as a separate legal entity. Rather, the income of the company is treated similar to an LLC or a partnership as pass through income to the shareholders thereby avoiding double taxation. Additionally, S corporations still protect their owners from the liabilities of the company similar to C corporations. Some of the disadvantages of S corporations include, there can be a maximum of a 100 shareholders of the company, which are all required to be U.S. citizens or residents, and there can only be one class of stock issued.

Non-Profit Corporations

Florida recognizes a wide spectrum of non-profit organizations, including organizations for charity, education, sciences, religion, and veterans affairs. The advantages of a non-profit corporation is that some qualify for income and/or property tax exemptions while at the same time enjoying the separate legal protection of the entity.

If you are just starting a business, check out this page here as it walks you through other things to consider before starting. If you have any questions or need to speak with an attorney, give us a call today. We are always here to help!