The legal structure you choose for your business impacts various critical factors, including personal liability, asset protection, and potential eligibility for funding. Your business structure may also lend formality and credibility to your business, which can be advantageous. As a result, you should understand the different options of business structures available to you under Florida law and how they may or may not be suited to your business needs.
A Boca Raton business transactions lawyer at Kramer Green can listen to your concerns, evaluate your needs, and help you determine the most effective legal structure designed to protect and grow your business under Florida law. We can also keep you apprised of any developments in the law as they occur so that you remain compliant with all applicable laws and regulations as you operate your business. Together, we can choose the best strategy to build and safeguard the business you have worked hard to develop.
Legal Structure Types
Sole Proprietorship
A sole proprietorship is the simplest form of business and, therefore, the easiest for a business owner to maintain. Many small business owners, particularly when run by a single person, choose to operate as a sole proprietorship due to its simplicity, cost-effectiveness, and straightforward formation. A sole proprietor has a single owner who maintains control of the business. Business profits and expenses pass through to the owner’s personal income tax returns, which results in uncomplicated tax preparation. However, the owner is personally liable for any business liabilities and losses, which leaves his or her personal assets vulnerable to significant risk.
Partnership
A partnership is a business structure where two or more people agree to share ownership responsibilities and liabilities. Typically, each partner contributes something of value to the business, such as money. property or services. A partnership requires a slightly more formal structure and joint decision-making procedures. However, like a sole proprietorship, business profits and expenses pass through to the partners’ personal tax returns, and the partners are personally liable for any business liabilities and losses.
In a general partnership, the rights and responsibilities of the business are divided equally between the partners. Each partner can act on behalf of all the partners, and each partner is equally responsible for the partnership’s debts and responsibilities.
On the other hand, a limited partnership consists of both general and limited partners, which allows a partner to determine his liability for the partnership. Unlike general partners, limited partners are not bound by the partnership’s actions, debts, and obligations. However, limited partners also have a very limited right to manage the business. Both types of partners benefit from the business’s profits, although the extent to which they share in such profits may differ.
Limited Liability Company (LLC)
Limited liability companies or LLCs are a more formal type of business structure but offer the greatest degree of flexibility, depending on your business needs. LLCs are subject to fewer formalities and ongoing documentation requirements than corporations, which makes them more cost-effective and less time-consuming to maintain. Members can either pass through the business income and expenses of the LLC on their personal income tax returns, similar to that of a partnership, by electing to be taxed as either a partnership or S Corporation, for federal income tax purposes or have the LLC taxed directly on the its profits and losses, and file a corporate income tax return., by electing to be taxed as a C Corporation, for federal income tax purposes An LLC’s most attractive feature may be its limited liability, which generally protects the members’ personal assets from the business debts and liabilities of the LLC
Corporation
Corporations are the most formal and complex business structures. These independent business entities can own property, transact business, and enter into contracts like a person. As a result, setting up a corporation requires the execution of various legal documents, so it is a more time-consuming and expensive process at the outset than forming other business entities. Corporations also require a great deal of ongoing maintenance and documentation to maintain their legal structure, including appointing a board of directors who must meet annually and approve certain actions of the corporation. These business entities also must follow various laws and regulations that may not impact less formal business entities, including laws related to their dissolution.
Corporations electing to be taxed as C Corporations, for federal income tax purposes, are taxed independently at a corporate tax rate, with the profits and losses of the corporation passing through to its shareholders, for those Corporations electing to be taxed as S Corporations, for federal income tax purposes, Either way, corporations and provide a t degree of protection for shareholders from liability for any business debts and liabilities, similar to that of an LLC. Other advantages of corporations include the potential for anonymity, clear separation of personal and business assets for shareholders, and access to capital markets.
Let Us Help Select the Best Legal Structure for your Business
A Fort Lauderdale business transactions attorney at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. stands ready to help choose the legal structure that best protects your business interests and meets your needs. Contact our office today at (954) 966-2112 or reach out to us online to schedule a time to discuss your legal business issues with our attorneys.