Business Formation

Many people think that the formation of a business is as simple as filing a few documents with the proper authority and hanging up a sign with the company logo.

Business FormationHowever, proper formation goes well beyond the inception of a business. The key to a well-designed business formation strategy is enough detailed planning to ensure that there is a defined and documented procedure the many contingencies that will arise.

Sound impossible? Not at Ourednik Law Offices!

When our business formation clients exit our office they leave with a custom-tailored strategy for operating their business from start to finish. Our legal analysis goes beyond creation to deal with issues such as the possibility of litigation, establishing a deferred compensation arrangement, continuance of your business in the event of unforeseen circumstances, protecting your business and personal assets and your transition strategy.

You want to give your business the best chance of success from the start, so contact Ourednik Law Offices today.

What Type of Business Is Best For My Needs?

Are you considering starting a business? If so, two important issues to consult with your Florida attorney about are: (1) proper formation; and (2) the duty to collect and pay taxes. Initially, there are several types of business entities available in Florida, each with their own set of requirements for successful formation. The most common options are:

  • Limited Liability Company (LLC): Any entity that transacts business in Florida as an LLC is required by the Florida Statutes to file “articles of organization” or an application for authorization with the Division of Corporations and pay a filing fee. All LLCs must also file an annual report each year between January 1 and May 1 and pay a renewal fee and a failure to file the annual report may result in the administrative dissolution of the limited liability company or revocation of authorization to transact business in Florida. It is advised, but not required, that the LLC also have an “operating agreement,” especially if the LLC consists of more than one member. An operating agreement is an agreement among LLC members that governs important issues such as the LLC’s business operations, financial and managerial rights and duties, and buy/sell arrangements. Most business formation attorneys advise that the LLC members enter into an operating agreement at the outset, to avoid complications, confusion, and disputes down the road. Florida LLCs are generally organized and governed under Chapter 608 of the Florida Statutes.
  • Corporation: Any entity that transacts business in Florida as a corporation is required by the Florida Statutes to file “articles of incorporation” or an application for authorization with the Division of Corporations and pay a filing fee. Corporations in Florida are subject to similar annual report requirements as LLCs and will lose their right to transact business if they do not meet these requirements. Corporations in Florida generally take two forms: (1) for-profit; or (2) nonprofit. A “for-profit corporation” is a corporation created for the purpose of conducting business and distributing income to the owners of the corporation. In Florida, for-profit corporations are generally organized and governed under Chapter 607 of the Florida Statutes. A “nonprofit corporation” is a corporation normally thought of as one created for religious, charitable, educational or artistic purposes. However, the label “nonprofit” does not bar these entities from engaging in profit making activities. Nonprofit corporations generally may not distribute their income to members, directors or officers other than as provided by law. Nonprofit corporations are generally governed under Chapter 617, of the Florida Statutes. Either kind of corporation has more statutory formalities that must be observed than LLCs and are generally not recommended for small businesses absent special circumstances. “Corporate bylaws,” similar to LLC operating agreements, should be in place to help avoid governance issues in the future.
  • Partnerships (including Limited Partnerships, Limited Liability Partnership and Limited Liability Limited Partnerships): Entities that transact business in Florida as Partnerships, Limited Partnerships, Limited Liability Partnerships, or Limited Liability Limited Partnerships are required by the Florida Statutes to file a “Partnership Statement” or “Certificate of Limited Partnership” with the Division of Corporations and pay registration fees. All limited partnerships, limited liability partnerships or limited liability limited partnerships that register with the Division must file an annual report each year between January 1 and May 1 and pay the filing fee and will lose their right to transact business if they do not meet these requirements. A general partnership is an association comprised of two or more partners, each a general partner, with full and unlimited personal liability and managerial control. A limited partnership is a partnership formed by two or more persons which has at least one general partner and one limited partner. The general partner has full and unlimited personal liability and managerial control while the limited partner has no personal liability and little or no managerial control (i.e., investors only). A limited liability partnership is a general partnership that is granted limitations on a general partner’s personal liability under the Florida Statutes. A limited liability limited partnership is a limited partnership that is granted certain limitations on a general partner’s personal liability under the Florida Statutes. Limited partnerships are generally governed under Chapter 620 of the Florida Statutes. The differences between the various forms of partnerships can be complicated and it is best to consult with a business formation attorney when determining which kind of partnership to form. Whatever form chosen, a partnership should have a “partnership agreement,” similar to an LLC operating agreement and corporate bylaws, to govern the relationship between the partners.

What About Taxes?

Once an entity is formed, there are tax consideration on both the state and federal level. In Florida, business owners must consider:

  • Sales and Use Tax: Sales tax applies to the sale, rental, lease, or license to use goods, certain services, and commercial property in Florida (unless the transaction qualifies as exempt). If a business will have taxable transactions, it must register with the Florida Department of Revenue before conducting business.
  • Unemployment Tax: Unemployment compensation gives partial, temporary income to workers who lose their jobs through no fault of their own, and are able and available for work. Employers pay for unemployment compensation through a tax administered by the Department of Revenue and businesses that are required to pay this tax must register with the Department before conducting business.
  • Corporate Income Tax: Corporations and entities that do business, or earn or receive income in Florida, including out-of-state corporations, must file a Florida corporate income tax return (unless the business qualifies as exempt).
  • Other Taxes: Other taxes administered by the Florida Department of Revenue include communications services, documentary stamp, fuel, gross receipts, insurance premium, pollutants, severance, and solid waste and surcharge. Business owners should contact a Florida attorney or the Florida Department of Revenue to learn more about these taxes and whether they apply to their entity.

Do I Need An Employer Identification Number?

On the federal level, new business owners must learn if they need to obtain an employer identification number (EIN) and pay the following taxes:

  • Income Tax: All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form used depends on how the business is organized. LLCs have several options regarding how they wish to be taxed under the IRS “check a box” regulations.
  • Employment/Payroll Tax: When a business has employees, the employer has certain employment tax responsibilities they must pay and forms they must file. Employment taxes include: Social Security and Medicare taxes, federal income tax withholding, and federal unemployment (FUTA) tax.
  • Self-Employment Tax: Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. An experienced business formation attorney can often help a business owner to minimize or eliminate self-employment tax.

Where do I start?

Form Your Buiness CorrectlyThe information given above is merely a beginning point for individuals looking to start their own business. While certainly important, proper business establishment goes well beyond the formation of an entity and compliance with applicable tax codes. The key to a well-designed business formation strategy is enough detailed planning to ensure that there is a defined and documented procedure in place to handle the many contingencies that will arise.

When our clients exit our office they leave with a custom-tailored strategy for successfully operating their business from start to finish. Our legal analysis goes beyond inception to deal with issues such as the possibility of litigation, establishing a deferred compensation arrangement, continuance of your business in the event of unforeseen circumstances, protecting your business and personal assets and your transition strategy.

You want to give your business the best chance of success from the start, so contact Ourednik Law Offices today.

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