There are many steps to take as your business evolves. But one of the most important considerations is whether your business formation is serving your business’s needs. If you are ready to evaluate your business formation, contact our well-respected Wellington, Florida business law attorney at Gueronniere, P.A. today. Grace de la Gueronniere is committed to engaging with you, learning about your business, and ensuring she creates a customized strategy to serve you and your business.
Considerations for Choosing a Business Formation
You should consider the following items when choosing a business formation or switching to a new one:
- Industry. Consider whether your industry is one where it is either required or standard to have a specific type of business formation.
- Personal Liability. The various types of business formations have different levels of personal liability.
- Taxes. How you file your taxes and the amount of taxes due will vary with the types of business formations.
- Ownership. Some business formations involve sharing ownership with a board of directors and shareholders, while others allow one person to maintain control of the business.
- Fundraising. Your business formation will also affect how you can raise funds for your business. For example, only corporations can issue stock.
- Paperwork. Lastly, how much paperwork is required varies with the types of business formations. The quickest formation to start is a sole proprietorship.
Types of Business Formations
The types of business formations include:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Company
- Corporation
Sole Proprietorship
A sole proprietorship has a single owner. The owner is responsible for the profits and debts of the business and files taxes as an individual and includes the business income and expenses with the owner’s taxes, which may allow the owner to qualify for certain tax deductions. If you want to operate with a business name and not your name, you must register the name you would like to use. A sole proprietorship is also easier to dissolve, as it does not require formal paperwork.
However, a sole proprietorship cannot raise funds through issuing stocks and may have trouble securing a loan from a bank. Also, in a sole proprietorship, the owner is personally responsible for the business’s debts and liabilities.
Partnership
A partnership is a business formation with at least two partners. To establish a partnership, you must file paperwork with the state of Florida. Like a sole proprietorship, the partnership does not pay taxes. The partners include their share of the profit and loss of the business on their income tax returns. You should also consider defining the arrangement in a written partnership agreement.
There are two types of partnerships:
- General Partnership. The partners share ownership, profit, and losses in a general partnership. The partners share the responsibilities and rights equally, including the liability if the partnership were to be sued.
- Limited Partnership. There are general partners and limited partners. The limited partners do not share the debts, liabilities, or responsibility for the partnership’s operations. General partners are personally liable and share the responsibility for operating the business.
Limited Liability Company
A limited liability company (LLC) has at least one owner. The owner must register with the state of Florida and file annual reports with information about the business. With an LLC, the owners of a business generally have limited personal liability for the business’s debts and when the company is sued. Unlike a corporation, an LLC does not have to maintain other corporate formalities, like stockholders or board of directors meetings.
The profits and losses pass through to the owners and are included in the owners’ income tax filings. But the profits and losses do not have to be shared equally. And an LLC allows for a single owner to maintain control over the business.
Corporations
There are a few different types of corporations. All types must register with the state of Florida and file annual reports with information about the corporation. Corporations can issue stock for fundraising and are considered separate entities from the owners as well. So if the business is sued, the owners usually have limited personal liability, and if the owners die, the company continues to exist.
Two common types of corporations are:
- C Corporation. C Corporations pay taxes as the business. And, as a stockholder or employee, you pay taxes on your earnings.
- S Corporations. S Corporations were created to avoid the issue of double taxation with C Corporations. The profits and some losses pass through to the owners’ income tax and are not subject to corporate taxes. In Florida, S Corporations are limited to 100 shareholders, and all the shareholders must be U.S. citizens or legal residents. Shareholders also cannot be partnerships or corporations.
Contact Gueronniere, P.A. to Evaluate Your Business Formation Today
Grace de la Gueronniere is an experienced business formation lawyer and can help you choose which formation is best for your business by reviewing your business’s needs and understanding your goals. Grace will work with you to complete all the steps needed to get your business formation set up correctly and efficiently. Contact our business formation attorney today for a free consultation.