By: Phillip N. Kabler Esq., Bogin, Munns & Munns, P.A.
Welcome back! In the prior article I outlined the future topics to be addressed over time.
So let us start where businesses start, when they are first formed.
But before I do…A quick reminder that the 2016 Florida Legislative Session has begun. House and Senate committees are already meeting to set the table for the upcoming Regular Session beginning opening in January. It is important for participants in the business community to pay attention to the issues which appear to interest both bodies of the new legislature, and to learn how those issues can affect one’s business. To stay informed, visit www.myflorida.com.
Back to it, you, an entrepreneur, have decided to start a business – o create a product, to deliver a services, or offer a hybrid of both.
There are many, many different ways to do business. From informal ways such as sole proprietorships, to the most formal ways such as limited partnerships and corporations, and a variety in-between.
Florida’s business entities are, for the most part, based upon the state’s statutes. Look at Florida Statutes Title XXXVI (Business Organizations).
Here is a list of the common ways of doing business under the statutes: general partnerships, limited partnerships, limited liability companies, and corporations, plus sole proprietorships. And let us not forget joint ventures and franchises.
What are the factors a business person considers when choosing a business entity to use? While there as many elements to consider as there are business people, in a practical sense there are basically three factors:
- Liability: Certain entities are exposed to unlimited liability. Long story short, the owners can lose all their personal assets upon a business catastrophe and others are, when properly organized and operated, protected by “imited liability. The owners can only lose the value of their investment in the entity following a catastrophe. Here’s a note to remember – It is possible for unlimited liability entities like LLCs and corporations to lose unlimited liability protection. And, be sure to engage with insurance agents who are experienced with commercial operations.
- Taxes: The following is a distilled discussion of a complicated area. So here we go: For certain entities such as partnerships, LLCs, and S-corporations business income and losses can pass through the entity and be taxed at the owner-level. And for at least one category of corporation, C-corporations, business income can be taxed at the entity-level and then again at the owner-level. Sole proprietorships are not entities at all, and their taxes are addressed at the owner-level. Entire law libraries are filled with the laws, rules, and regulations governing business tax. And I have not even addressed non-profit corporations, and the new benefit corporations and social purpose corporations. It is crucial, then, to engage with a tax accountant or tax attorney to guide you through these rocky shoals.
- Privacy: Business entities which are creatures of statute are required to register with and report to the Florida Department of State – Division of Corporations. Much of the content of the registered entities’ constituting documents and annual reports are available online, and for no charge, at the state website, www.sunbiz.org. On that website, visitors can easily find the constituting documents, such as articles of incorporation, learn who the top-level management is, and the contact addresses. Other businesses can keep their information private, such as sole proprietorships and certain general partnerships. And, the issue of disclosure is highlighted with pubic entities.
Again, these are just the three basic categories commonly considered. People being people, there are a broad range of other factors such as finance, risk tolerance, management style, and psycho/social/ethical preferences which drive an entrepreneur’s business entity selection.
Business entity selection is a rich topic. But one, which when carefully considered, can lead to satisfying professional results for the entrepreneur, the business’ workers, customers, and its local/state/national communities.
The next time, we will address financing a business.
For more information, call Philip N. Kabler, Esq. of the Gainesville, FL office of Bogin, Munns & Munns, P.A. at (352) 332-7688, www.boginmunns.com/gainesvillelawoffice, where he practices in the areas of business, real estate, banking, and equine law.
NOTICE: The article above is not intended to serve as legal advice, and readers should not rely on it as such. It is offered only as general information. Readers should consult with an attorney regarding their legal matters, as every situation is unique.