File a Corporation in the State of Florida
A general business corporation (commonly referred to as a C corporation) is probably the most well known, and most complex, of the Florida statutory entities. Corporations are characterized by their separate legal existence from their owners, the specific formalities that must be satisfied to maintain active status, and the double-taxation feature that can only be avoided by corporations that are eligible through specific IRS filings.
The concept of the corporation was initially created to allow business owners to shield themselves from the liabilities of their business association, in most instances a partnership. A corporation owns its own property, signs contracts, earns income, incurs its own expenses and debts, and can sue or be sued. Because the owners of a corporation, called shareholders, do not actually have title to the corporation’s property and do not sign its contracts in their own name, nor directly receive the income enjoyed by the corporation, the owners are not personally liable for the corporation’s debts and liabilities. This protection from personal liability is the key attraction of corporations; it allows a person to invest in a business without risking the loss of assets other than the amount of investment in the business.
Ownership, management and maintenance of a corporation involves four distinct types of participants: incorporators, shareholders, directors and officers.
- The incorporators are the individuals who sign and file the articles of incorporation that create the corporation. Incorporators are generally free from liability for a corporation’s obligations or debts, though in some instances incorporators, when acting as or on behalf of a corporation prior to its incorporation as “promoters,” may be liable for the liabilities created by such acts.
- The shareholders are the owners of the corporation as evidenced by the stock or shares they own. They are generally not involved in day-to-day management or decision making, though in small corporations with few shareholders, it is not uncommon for one person to be a shareholder and a director and/or officer.
- The directors, appointed or voted onto the board by the shareholders, are charged with controlling the property and business of the corporation. Directors traditionally address the long-range or “big picture” issues for a corporation, and leave the day-to-day business to the officers.
- Each general business corporation must have a president and secretary, and can have other officers as prescribed by the corporation’s bylaws.
The Florida laws that create the artificial entity known as a corporation include specific provisions requiring adherence to certain formalities and activities by the directors and officers running a corporation. Each corporation’s articles of incorporation, filed with the Secretary of State to formally create the entity, must include specific information, and may only be amended pursuant to specific statutory limitations.
Florida law also provides for the creation of a set of bylaws which serve as the rules and regulations for the operation of the corporation. Florida law requires a corporation to hold an annual shareholders’ meeting, as well as an annual meeting of the board of directors; minutes of both proceedings must be taken and maintained.
Corporations must also issue stock certificates to their stockholders and make the corporate records, including annual and other meeting minutes, and a record of the stock issued and outstanding, available to the stockholders. In addition, a Florida corporation must have a board of directors elected by the shareholders and corporate officers, including at a minimum a president and secretary, chosen by the board of directors. The corporate positions are detailed in the corporation’s annual registration report filed with the Florida Secretary of State every year. Failure to file an annual report can lead to administrative dissolution, and in such an event the corporation may no longer carry on its day to day business. The combination of these and other formal requirements make the maintenance of a corporation more onerous than the maintenance of a limited liability company or other statutory entity.
In the formation of a corporation, it must be decided whether the shareholders will have “cumulative” voting rights in electing directors and whether shareholders will have “preemptive” rights in purchasing stock.
- “Cumulative” voting is a mechanism which can increase the influence on the election of directors by holders of less than a majority of the voting stock.
- “Preemptive” rights allow stockholders to purchase stock in subsequent sales of stock, affording them the ability to maintain their percentage ownership of the corporation.
Florida law provides for the default inclusion of both cumulative voting and preemptive rights for stockholders unless otherwise addressed in the articles of incorporation. (Cumulative voting rights may also be addressed in a corporation’s bylaws.)
Because a corporation, with its specific statutory formalities, is a separate entity from its owners, it is recognized as a taxable entity by the Internal Revenue Service. The income of a corporation is taxed in the same manner as the income of an individual, though the corporate tax scheme and rates differ from personal income tax. Not only is the corporation’s income taxed, but when corporate earnings are distributed to stockholders, in the form of dividends, the stockholder receiving the money is also taxed. Therefore, each dollar earned by a corporation, and then passed along to its owners, is in effect taxed twice.