Choosing the Right Business Entity
It is a new year, which means you may be thinking about starting a new business. Launching your business begins with choosing the right entity, accounting for your future business goals. In Florida, there are various options available when establishing your business. Here are the most popular business entities and the advantages and drawbacks of each type.
Sole proprietorships are the most common business structure. New businesses are automatically classified as sole proprietorships in Florida unless registered with the state. Sole proprietorships are owned and operated by individuals; there is no distinction between the business and the person. If you want to establish a different business name, you will need to register your sole proprietorship under a fictitious name, called a DBA (“doing business as”). DBAs must be registered with the state.
Sole proprietorships are quick and easy to set up. They require almost no paperwork and are set up automatically.
Since there is no distinction between the owner and the business, sole proprietors are liable for personal and business assets. This means someone can sue a sole proprietor for their home and other personal assets, not just their business profits.
Limited Liability Company (LLC)
Another typical business structure is an LLC. LLCs may be operated individually or with several employees and contractors. LLCs must be registered with the state and keep up yearly registration fees and licenses, depending on the type of business.
LLCs are separate business entities that are not tied to the business owner’s personal assets. If someone were to sue an LLC, they could only sue for the business’ profits. LLCs allow for distinguished business structures without the formalities of a corporation.
LLCs require some paperwork to set up and be registered yearly with the state. LLCs require separate accounting for the business, which increases paperwork and tax preparation costs.
Corporations are entirely separate entities from individuals or business owners. Essentially, a corporation can act as an individual: loaning and borrowing cash, filing lawsuits, hiring employees, and entering contracts. Business ownership is obtained by purchasing stocks in the business. While many individuals may operate a corporation, shareholders are the business owners.
The advantages of creating a corporation are that it is self-sufficient and runs separately from business operators. Forming a corporation may be a good idea if your future business goals include international expansion.
Corporations have strict guidelines and laws they must follow. Detailed record keeping is required, and accounting records must be submitted to the state to ensure legal operation. There are also more taxes involved with forming a corporation.
A non-profit is a charitable corporation formed for philanthropic, educational, scientific, or religious reasons. Non-profits are run by a board of directors and operated by individual employees or volunteers. Non-profits must apply and be approved for 501(c)3 (tax exemption) status.
Non-profits are tax exempt, by far one of the most significant advantages of this business entity.
There are many policies non-profits must follow. This type of business structure is only available for certain kinds of businesses.
Boutty Law Firm: Orlando business attorneys
The Boutty Law Firm can help ensure your new business is in good legal standing. We can help you file paperwork to get your business affairs in order, as well as draft up employee contracts and help file quarterly reports. Contact us at 407-622-1395 to learn how we can help your business grow.