If you are starting a new business, or if you’ve been in business as a sole proprietor, LLC or partnership, there may be advantages to formally incorporating it. As with any business decision, it’s important to fully understand the process of incorporating a business, as well as the implications of doing so.
Why Consider Incorporating?
First, as with other forms of business ownership like LLCs and limited partnerships, a corporation is a separate legal entity apart from its owners and may enter into contracts or agreements with customers or vendors and transact business under a corporate name. So, the death of a corporate shareholder (owner) doesn’t dissolve the business. This can be beneficial both in planning for long-term business operations and in business owners’ estate planning decisions.
In a corporation, the individual owners are generally not personally liable if the corporation is sued, and aren’t liable for the company’s debts. Of course, there may be situations where the owners are asked to personally guarantee loans or lease agreements, in which case they are liable to the extent of those agreements.
From a tax standpoint, corporations may offer distinct advantages too. Profits of sole proprietors, partnerships and LLCs are taxed at the owners’ individual income tax rates whether or not that profit is taken out of the business. Similarly, corporations are responsible for paying income taxes on profits that cannot be deducted as business expenses. However, corporations may retain a certain amount of profits inside the business without paying income taxes on it in the year earned. Corporate taxation can be confusing and complex, and is best discussed with a knowledgeable attorney who understands corporate tax matters.
What’s Involved in Incorporating in Florida?
If you have decided to incorporate, one of the first steps to take is to make sure the business name you want to use isn’t already registered or in use by another Florida business. This is important because you are liable if your business’ name infringes on another business’ name. Your attorney can help you with this search.
In order to register your business, you will need to file articles of incorporation with the Florida Department of State’s Division of Corporations. The format used and information required will depend on whether you’re starting a for-profit corporation or a not-for-profit corporation, but in general you will need to provide:
- The name of the corporation, which must include “Corporation, Corp. Incorporated; Inc.; Company; or Co.”
- A street address for the principal place of business, and the mailing address, if different
- The specific purpose for a professional corporation
- How many shares of stock the corporation has authorized
- Names and addresses of directors and officers. While this information is optional on the formation documents for the state, it will likely be required to obtain financing
There are fees required to establish a corporation, and annual fees in order to maintain registration.
After you’ve filed with the Department of State, you may also need to register with the Department of Business and Professional Regulation, and you may be required to register in the county where you’re conducting business.
Last, but not least, you’ll need to obtain tax identification numbers from the IRS and the state of FL.
In order to maintain limited liability for business owners, corporations also need to follow certain legal formalities including having governing documents in place, holding periodic meetings and documenting decisions and transactions.
Your attorney can help you make these required filings, obtain the required tax ID numbers and make sure the legal formalities are met.
Consider Other Business Entity Structures
Of course, incorporating may not be the best choice for every business. For some businesses, a Sole Proprietorship, an LLC or a Partnership structure may be more advantageous than a corporation.
Ultimately, there are no one-size-fits-all solutions when it comes to determining the best legal structure for your company. The choice of entity will depend on a number of factors including the size and nature of your business, the amount of capital you’re committing, and how different methods of business taxation might impact business owners.
Working with an experienced business law attorney who understands the tax implications of various types of business structures can help you make a sound decision. To learn more about whether it makes sense to incorporate your business, contact the knowledgeable business law professionals at France Law Firm, P.A. today.
