Incorporating Your Business In Florida
If you're looking to open a new business, one of the first things you'll want to decide on is the type of entity your business will be. Will you be self-employed? Will it be an LLC? What about an S-Corp? The options are endless and can seem confusing but that's why we're here!
We hope this article will give you a base understanding of what these entities are and how they differ from one another. From there, we recommend reading through our other articles for more detailed breakdowns.
Sole Proprietorship
This is the easiest business to set up. Sole proprietorships are taxed as a "pass-through entity", meaning the tax revenue is passed through to you personally and reported on your personal tax return. This can be beneficial because it allows you to deduct business losses on your individual income taxes. The numbers below are based off of the IRS tax code in effect for 2017 (here). If your state has a different tax code, then please use the information in this article as a starting point and consult with an accountant or CPA regarding specific rates for your state.
The most important thing to remember when considering a sole proprietorship is that you are personally responsible for anything that happens in your business. If you have a customer who files a lawsuit, you will be held accountable. This can be scary, but it also makes sole proprietorships very appealing from a cost standpoint. It's cheaper to set up and run than other types of businesses because there are fewer "insurance" policies you need to worry about purchasing.
If you're interested in being your own boss, then a sole proprietorship is where it's at!
S Engaged in Business as a Sole Proprietorship (General Rule)
If you have "at least one month" of active conduct of business during the year, then you will be considered an engaged in business. This applies whether the entire year is spent working on your business or just over the past few months. If you are not engaged in any trade or business for the year, then this option will not apply to you and you will need to setup an LLC via Articles of Organization.
L Engaged in Business as a Sole Proprietorship (General Rule)
If you have "at least 30 days" of active conduct of business during the year, then you will be considered an engaged in business. This applies whether the entire year is spent working on your business or just over the past few months. If you are not engaged in any trade or business for the year, then this option will not apply to you and you will need to setup an LLC via Articles of Organization.
LLC LLC (Limited Liability Company) is a popular way for small businesses to do their own taxes. The best part about an LLC is that it allows you to decide how much to pay yourself (called your "draw") and how much of the profits to put back into the business.
An LLC is a pass-through entity, in the sense that you will not file any separate tax returns for your LLC. Instead, all of the profits earned will be passed on directly to your personal 1040 form. This can be beneficial because it allows you to deduct any business losses on your individual income taxes.
You'll typically pay around $150 in fees to set up an LLC with the state of Florida. There are a few other things you need to keep in mind when incorporating as an LLC.
LLC's are self-managed. This means that you will personally be responsible for all of the financial records, reporting to the IRS, and payment of taxes. If you're not sure how to start keeping these documents, please refer back to this article on "how to start a business."
LLC's are not legally required to have an owner or manager. I would highly recommend employing a manager or "member-manager" if your LLC consists of more than one person (and is not a sole proprietorship). Having a manager can ensure that the business is being operated efficiently and with the highest levels of confidentiality. This can be especially important if you're handling sensitive information through your business.
For more information on LLC's, check out our other articles:
General Partnership
In a general partnership, the partners of a business are considered legally responsible for all debts and actions. This can be very risky to do on your own, so I would highly recommend consulting with an attorney before setting up this type of business. There are a few different options you can use to set up a general partnership:
Agreement between Partners : If you have two or more partners that agree to pool their resources together, then you have the option of setting up a "verbal" (non-written) agreement between yourself and your partner/s. This will work as long as you have the consent of your partner(s) and all share a desire to be in business together. You can hire an attorney to draft an official partnership agreement to formalize this agreement. This will give you peace of mind knowing that your business is registered and consistent with all applicable state laws and regulations.
: If you have two or more partners that agree to pool their resources together, then you have the option of setting up a "verbal" (non-written) agreement between yourself and your partner/s. This will work as long as you have the consent of your partner(s) and all share a desire to be in business together. You can hire an attorney to draft an official partnership agreement to formalize this agreement. This will give you peace of mind knowing that your business is registered and consistent with all applicable state laws and regulations. Articles of Organization : You can also make a general partnership official by filing paperwork with your state's Secretary of State or Corporate Registry. These types of forms are in addition to any written agreements you have signed with your partners.
: You can also make a general partnership official by filing paperwork with your state's Secretary of State or Corporate Registry. These types of forms are in addition to any written agreements you have signed with your partners.
Conclusion
Hopefully this article has given you a few ideas to get started. There are many more options available, but I wanted to cover the most popular ones. If you have any questions about setting up a business in your state, feel free to shoot me an email at lauren@realestatesage.com or visit our contact page.
Happy Businessing! 🙂
The Real Estate Sage – Lauren Stewart, MBA/MSM, Realtor and Business Consultant specializing in real estate investing since 2005. Lauren helps investors create cash flow through rental properties and also teaches real estate wholesaling and flipping courses at The Real Estate Sage Academy .