I Stand Up for Your Business
Everyone has a plan until they get punched in the mouth-Mike Tyson famously uttered these words when responding to a reporter’s question about whether he was concerned with Evander Holyfield’s fight plan to beat Tyson in the boxing ring. Nearly 25 years later, these words still ring true, particularly when an otherwise profitable and unsuspecting business has just been sued and is caught flat-footed. But does this mean that one should never plan? The answer is a resounding No.
Businesses and the decisions they make have a tremendous impact on the world we live in today. Unfortunately, a great deal of business decisions are made without an understanding of the potential legal ramifications and consequences they inherently carry with them. But what if you could identify and minimize the risk for the areas where your business is potentially vulnerable?
This anticipatory and proactive method is the cornerstone of transactional business law. A good business lawyer will help a business successfully manage its legal risks and thereby help it to avoid the common pitfalls involved with business formation and contracts and sales transactions. In addition, a business lawyer can add value to a business by staying abreast of and interpreting laws that impact a business and effect its regulatory compliance requirements as well as by warning the business of the existence of any ticking time bombs that cause deals to blow up financially. A business lawyer is a valuable asset.
Forming Popular Types of Business Entities in Florida
When forming a business in Florida, the first step is deciding what type of entity is best for your business. For example, is it a corporation, partnership, or limited liability company (LLC)? The best entity form depends on structure, liability, tax, and management considerations. There are several different issues to consider when selecting the appropriate business entity. However, determining which entity form to pick depends mainly on the intended purpose of the entity. A Coral Gables business lawyer can guide you through the selection process. There are certain popular types of business entities that you will want to consider when forming your entity.
Limited Liability Companies (LLC’s)
A Florida limited liability company offers a great deal of flexibility and combines the liability protection of a corporation with the tax treatment of a partnership. For these reasons, LLCs are have become the go-to business entity. LLC’s offer several key advantages, including:
- Members of an LLC are not individually responsible for the LLC’s debts.
- Members can split up profits among themselves without a lot of restrictions
- Less formal than a corporation. For example, an LLC does not need to have annual meetings or keep written minutes
- An LLC is known as a pass-through entity for taxation, therefore its members do not get taxed twice.
- Fewer restrictions on ownership than a corporation.
Disadvantages of an LLC include:
- There are additional obstacles if it plans to ultimately become a public company.
- LLC’s tend to be more complex than partnerships
- The income of certain members may result in self-employment tax
C- or S-Corporation
Corporations are the oldest and most common form of company. The chief characteristics of Corporations are as follows:
- Corporations are currently or will become a public company.
- Corporations have a formal management structure.
- Corporations have owners (shareholders) or management (directors and officers) who desire:
- a predictable and recognized legal structure;
- limited liability; and
- perpetual existence.
The most popular type of corporate form is the C-corporation. Most of the time when people use the word corporation they are referring to C-corporations. The income earned by C-corporation’s is subject to two levels of US federal income tax:
- At the corporate level when earned.
- At the shareholder level when profits are distributed as dividends or other distributions.
This type of taxation is known as double taxation. Double taxation can be eliminated by a corporation electing to be treated as an S-corporation, which treats the corporation as a pass-through entity for US federal income tax purposes. An S-corporation does not pay an entity level tax. Rather, profits and losses pass through to its shareholders who report, and are taxed on, their respective share of those items on their own US federal income tax returns, whether or not distributed You should always consult with a tax attorney or certified public accountant familiar with both state and federal taxation issues before forming an entity.
Partnership or Limited Partnership
A partnership is a voluntary contract between two or more parties and does not need to be writing to be legally binding. In fact, a partnership requires no special formality at all. However, it is generally always a good idea to have a formal written partnership agreement so that a court will easily be able to ascertain the existence of the partnership since the best evidence of the existence of a partnership is a written agreement or contract.
Limited partnerships in Florida are governed by the Florida Revised Uniform Limited Partnership Act. This statute specifies procedures incident to formation, defines the rights and liabilities of the parties, and provides for termination of the organization. Just like a regular partnership, the partnership agreement is the heart of a limited partnership. The critical difference between a partnership and limited partnership is that in a limited partnership the general partner(s) manages the business and can be held personally liable for its debts, while the limited partner(s) does not manage and can only be held liable to the extent of its capital contribution. A limited partnership is formed by filing an executed certificate of limited partnership with the department. The certificate grants authority for the limited partnership to transact business in the state.
A sole proprietorship is the most basic form of business entity and requires formal compliance with any applicable statute or regulation to effectuate its formation and maintenance. It is not a distinct legal entity because any assets and property that a sole proprietorship owns are treated as the property and assets of the individual doing business as a sole proprietor. Since Florida law does not treat a sole proprietorship as a separate and distinct legal entity, its owner is 100% personally liable for all of its obligations, whether they stem from a tort like a slip and fall or are the result of a breach of contract. Nonetheless, a sole proprietorship may be the appropriate entity for a small company if the cost savings and liability outweigh any disadvantages.
Want to Know More?
Contact Miami business and probate lawyer Andrew Pascale for further information.
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