Small business owners in the state of Florida should be aware of their fiscal options. While many entrepreneurs spend the majority of their time perfecting their line of work and pleasing their customer base, there are pressing financial decisions that need to be a top priority.
One of the most important of these decisions occurs at the very beginning: Should you incorporate your business in Florida?
Establishing a "corporation" allows a business or company to operate financially independent of the person who owns and or runs it. The corporation itself can be legally liable for applicable local, state, and federal taxes. A corporation can also be sued in court by individuals and other companies or corporations. But the business owner is not financially liable for business debts and an established corporation may enter into contracts and agreements.
Once a corporation has been formed, it operates on its own and as a unique business entity with the ability to survive changes in ownership as they occur. Each corporation is owned by its "shareholders," rather than a specific individual. Active shareholders are entitled to vote as to which of their fellow shareholders will serve on its "Board of Directors." Board members are responsible for future financial decisions, internal regulations, and changes in corporate policy.
An LLC or "limited liability company" is another form of legal structuring that allows a business owner to operate their business independent of their personal finances. The owner of the LLC is able to take advantage of incorporation as a "member" of the business. This gives the small business owners many of the same advantages of sole or joined proprietorship.
Anonymity. Operating as a corporation allows one to operate their small business on an anonymous basis. Unlike sole proprietorship or a partnership, the public is not privy to the name of the owner or owners. This is often advantageous depending upon the type of small business being run, choice of products sold, and line of services offered to the community.
Liability. Once legally incorporated, business owners no longer experience personal liability when it comes to business debts. During a financial crisis, creditors don't have the ability to legally tap the personal finances of the owner or owners to repay a debt. This includes the seizure of personal financial assets, loss of property or a lien on one's home.
Capital. When starting a small business, it's often easier to raise much needed capital as an incorporated business. The corporation may sell interests in its equity or stock in the company. Obtaining capital as a sole proprietor or partnership is riskier because prospective investors may fear personal liability issues or future insolvency on the part of the business owner.
Longevity. A corporation is both legally and financially sturdier in the event of a change in ownership. This is most evident in the event that a sole owner (or one of the partners) is incapacitated, dies, or decides to end their involvement in the company. An unincorporated business may also suffer if the sole proprietor or a member of the partnership is undergoing personal legal and financial issues. As a corporation, a small business is able to stay afloat financially in difficult times via the sale of its stock. The corporation is able to continue on because it's run by the shareholders and the elected Board of Directors. At no time is the longevity of the company dependent on a single individual.
Taxes. An incorporated small business is offered a plethora of tax benefits. These include tax benefits for offering enrichment plans to employees. In turn, benefits such as health, dental, life, and retirement insurance (among others) work to attract long-term employees.
Paperwork. The very act of transforming one's small business into a corporation requires more paperwork. Maintaining an incorporated business also requires a business owner to keep accurate financial records. As required by the state of Florida, the corporation must continue to operate in "good standing" or risk losing their status as a corporation on either a temporary or permanent basis.
Legal fees. Florida small business owners are advised to retain the services of an attorney to set up a corporation. Initially, these costs can be expected to run anywhere between $500 and several thousand dollars. Once a small business has been Incorporated, retaining legal services (at an agreed upon amount) to monitor the corporation is generally favored by shareholders.
Complexity. For very small businesses, the average profit margin may not be high enough to warrant incorporation. Once incorporated, the profit base may not be high enough to take advantage of available tax benefits. The act of incorporation may only complicate what was created as a simple and straightforward business model being run by an sole individual or amicable partnership.
Financial. Owners and partners in small businesses already have many advantages without officially becoming a corporation. Many of these benefits stem from the lack of individual income tax for residents of Florida. As a shareholder of a corporation, dividends paid may be taxable rather than tax deductible. For this reason, small business owners should consult not only an attorney but their accountant to ascertain whether being a corporation holds financial rewards for them in the long run.
Corporations in Florida must file Florida Form F 1120, better known as the "Corporate Income/Franchise Tax Return." This is also true of Florida corporations located in other states. In the case of partnerships where a corporation is one of the partners, the partnership must file "Florida Partnership Information Return" or Florida Form F 1065.
Get started today or contact us if you have any questions.
Wondering what happens after you submit your incorporation order to us? Have questions about using MaxFilings to incorporate your business or form an LLC? Here you'll see basic questions about our system that can help make your experience smooth and hassle-free. FAQ About MaxFilings