Types of Business Entites
Many types of business entities exist in Florida. Understanding the difference between the various entities is helpful in deciding which type of entity best conforms to your goals. Some entities are designated under Missouri’s statutes while others are not.
In general, a single person who is operating a business is a sole proprietor, and a group of people who are operating a business together and sharing profits are a partnership. No filing or registration is needed to form these associations, as they are the default business forms. Until affirmative, specific steps are taken to change that form or identity, the proprietorship or partnership continues in existence.
In order to take advantage of certain legal and practical advantages, a person or group of people might form a corporation or other statutory entity. Without Florida’s authorizing statutes, no corporation, limited liability company, or statutory partnership could be formed, and all individuals and groups doing business would remain sole proprietors or partnerships.
When articles are filed with, and a certificate of existence is issued by the Secretary of State, a business entity is formed or “born.” From the time of its creation, a statutory entity is in legal existence and can carry on business, sue and be sued, pay taxes, enter into contracts, own property, and earn income, up until the time it dissolves or “dies.” This separate legal existence is the foundation of two of the most important business entity characteristics: 1) the liability protection; and 2) the tax treatment of that particular business form.
Generally, a corporation’s main characteristics form the basis of its business advantages. A corporation, through its statutory creation, is an entity separate and apart from its owners (shareholders), and the liabilities and obligations of the corporation are not those of the owners. This separation of liability is the most crucial component of a corporation or a limited liability company.
Without one of these statutory entities, the owners of a business venture assume all the liabilities of the venture and are responsible for the liabilities and actions of the employees acting for the business. This includes exposure of the owners’ personal assets and property such as their homes, holdings and possessions. To avoid such liability, business owners form corporations.
Because corporations are separate and apart from their owners, however, they are often subject to taxation on the corporation’s income. This results in a double-taxation; the corporation’s income is taxed, and then the money distributed to the corporation’s owners is also taxed as personal income of the shareholders.
If the corporation was never formed, and the group of business people left the business as a general partnership, that partnership itself would never be taxed, as it is not a separate entity, and the only taxation would be on the partners themselves. To avoid the double-taxation dilemma of corporations, while also enjoying the liability shield of the same, limited liability companies, limited partnerships, and special-election small corporations were invented.
Choosing an Entity
Liability protection and tax benefits are just two of the primary factors in choosing a business entity. This guide includes brief descriptions of a few of the other factors, as well as the process for forming a statutory entity and completing several of the other steps in creating a business.
The decision of which entity to select, however, is a crucial one best made with the advice of professionals with training on the matters such as attorneys, accountants and financial planners.
THE OFFICE OF THE SECRETARY OF STATE IS A FILING OFFICE AND RECORDS CLEARINGHOUSE – IT IS NOT AUTHORIZED TO, NOR DOES IT THROUGH THIS DOCUMENT OR OTHERWISE, OFFER LEGAL, ACCOUNTING OR TAX ADVICE. YOUR COMPLIANCE WITH MISSOURI’S STATUTORY REQUIREMENTS IS BEST MANAGED THROUGH CONSULTATION WITH A PROFESSIONAL. THIS HANDBOOK IS DESIGNED TO RAISE QUESTIONS AND POINT OUT FACTORS RELATED TO THE CREATION AND START UP OF A MISSOURI BUSINESS. IT IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE, NOR DOES IT NECESSARILY PROVIDE ALL OF THE INFORMATION NECESSARY TO START A BUSINESS IN FLORIDA.