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Corporate Structures
Corporate Structures
How you structure your company has huge effects on taxation, personal liability, funding, and profits. Choosing the right corporate structure is essential and should be based on your strengths, goals, and desired protection.
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Common Structures
Sole-Proprietorships
Sole-Proprietorships are automatically formed if you choose not to register as any type of business but nevertheless engage in business activities. Because there is no corporate structure to protect you from liability, you may be held personally liable for the debts of the sole-proprietorship.
Corporations
Corporations offer the highest level of protection to its owners from personal liability. However, the corporation is also required to pay taxes on its profits, resulting in double-taxation when the profits eventually go down to its shareholders or employees. Additionally, forming corporations will likely require the most paperwork, record-keeping, and reporting.
Limited-Liability Companies
LLC's will generally limit your personal liability in paying the company's debts and obligations. Additionally, profits are passed through the LLC without the double-taxation of corporations. However, the life of an LLC is usually dependent on its members, and transitioning members can prove problematic unless there is a properly drafted agreement in place.
Partnerships
Partnerships automatically form when two or more people do business with the intent of making a profit. Each partner must contribute to the partnership, and the profits and losses of the company run with the contributions. The profits of the partnership are also passed through to its partners. Liability is dependent on the type of partnership.
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Formation Requirements
Sole-Proprietorships: These are automatically formed when someone conducts business activities without registering their business under a corporate structure.
Partnerships: Similar to the Sole-Proprietorships, these are automatically formed when two or more people engage in business activities with the intent of making a profit.
Limited Liability Partnerships: How LLP’s are formed generally vary by state. In the State of Florida, in addition to the normal requirements of a general partnership, you must (1) file a Statement of Qualification with the Florida Department of State Division of Corporations, (2) choose an agent who lives in Florida to receive legal notices from the Florida Secretary of State, (3) apply for and obtain an Employer Identification Number from the IRS, (4) file annual reports to maintain the LLP status. It is also generally recommended to have a written partnership agreement, which includes provisions including but not limited to how profits are distributed, contributions, distribution of contributions in the event of liquidation, managerial decisions, etc.
Corporations: How to incorporate your company also can vary by state. In the State of Florida, you must: (1) file articles of incorporation with the Department of State, (2) apply for and obtain an Employer Identification Number from the IRS, (3) obtain all the necessary state and local licenses, which can include but are not limited to Certificate of Status, the designation of a registered agent, etc.
Limited Liability Corporations: Similar to corporations, to create an LLC in the State of Florida, you must (1) file an Articles of Organization with the Florida Division of Corporations, choose an agent who lives in Florida to receive legal notices from the Florida Secretary of State, (3) apply for and obtain an Employer Identification Number from the IRS, (4) open a Florida-based bank account, and (5) file active annual reports to maintain the LLC status. It is also generally recommended to create and file an Operating Agreement.
“The one who does not protect the castle, will soon no longer have a castle.”
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Annual Filings & Record Keeping
Sole-Proprietorship: while there are no official documents to file annually to maintain a sole-proprietorship, do be sure to properly file and pay all your taxes. These may include but are not limited to income tax, self-employment tax, social security, etc.
Partnership: Similar to above, make sure to file and pay your taxes. Luckily for partnerships, profits pass through directly to the partners in a partnership.
Limited Liability Partnerships: you must file an annual report and requisite fee generally by the third Friday in September every year of your LLP’s existence to maintain an active status with the Department of State. Failure to file the report will result in the dissolution of the business entity. However, the entity’s status may be reinstated with a proper filing along with a $400.00 late fee. The annual report is generally an update of the initial information required to form your business entity, including information like the initial Document Number assigned to your entity, the entity name, the Employer Identification Number, contact information of both the business and registered agent, and sometimes a Certificate of Status. Similar to the above, you must also pay your taxes!
Corporations: Similar to LLPs, corporations must also file the same annual reports and taxes. However, corporations have very strict internal requirements, including holding annual director and shareholder meetings, maintaining updated bylaws, stock issuances, and recording of any stock transactions.
Limited Liability Corporations: LLCs must also file annual reports and taxes. Similar to corporations, LLC also has strict internal requirements, including the issuance of membership shares, recording of any share transactions, and annual meetings of members and managers.
Corporate Structure FAQ
How do I choose which corporate structure to use?
Which corporate structure you choose to use will depend on your own personal preferences of how you want your company to treat you. Are you more interested in limiting how much your profits are taxed? You will likely choose some form of partnership. Are you interested in limiting your personal liability to your clients? You will probably pick some form of corporation. There are numerous options, and you can choose precisely the balance you wish to achieve.
We can help you choose which corporate structure is best for you and your specific business model and needs. We can also inform you of any requirements for filing, maintenance, or check-ups once your company has been established.
Do I need you to file for me? Can't I do it myself?
Filing forms for yourself is a great way to get started on your journey to becoming a self-sufficient entrepreneur. However, without an attorney to review your material, it may be easy to miss something in your filings, as state offices usually have strict requirements for incorporation or registration.
Additionally, many of the business structures require yearly upkeep, which is time that you, the mind behind the business, should spend on growing your business. We can streamline this process for you and ensure you file in a comprehensive, timely, and efficient manner.
This is a lot of information. Is there an easier way to digest this?
Of course! Sign up for a consultation to speak with a representative at Wilborne Law.
Where can I find these forms and where do I file them?
The requirements for form filings for each type of corporate structure generally varies by state. In the State of Florida, a good place to start is the Division of Corporations website at dos.myflorida.com/sunbiz/.
How much will you charge for filing and maintaning any of the above?
We work on a combination of flat fees and hourly (depending on the time required). Please let us know what your needs are so we can give you a quote!
What services do you provide in this field?
We will sit down with you for a comprehensive info-gathering session to establish what your needs are to determine which corporate structure is best for you.
We will then gather all the information from you required to fill out the forms, file them for you, and keep up with all the annual upkeep, maintenance, and filings to make your time as a business entity as streamlined as possible.
We will notify you of any upcoming filings, and ensure that we ask the proper questions to keep your information updated.
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