Contributed by Jo Ann M. Koontz, Esq., CPA
Thinking of starting a business or formalizing your business entity? Have you been afraid or not quite ready to take the risk? Fear not! America thrives on the contributions of small businesses. Follow the legal and regulatory steps below to be sure you start growing your business from a solid foundation.
1. Select Business Structure
One of the first steps in organizing any new business is to determine which type of business entity should be formed. When considering the type of business, you need to evaluate both present and future needs of the business and its owners in legal, financial, and tax related aspects. Did you know when operating as a sole-proprietorship, you are entirely and personally responsible for the actions of the company? The best way to really protect your personal assets is to form a corporation or limited liability company (“LLC”).
There are four common types of business entities:
Sole Proprietorship: The sole proprietorship is the simplest form of business structure, however provides the least amount of liability protection. This is not a separate legal or tax entity. The business owner is personally liable for all taxes and liabilities of the company. Many people mistakenly believe the use of “Doing Business As” (D/B/A) designation as the formation of a separate entity. It is not, and it does not afford the owner any liability protection.
Partnership: A partnership is an organization or association of two or more owners who operate a business together and allocate the ownership and profit/loss aspects according to their contractual terms. This partnership is a separate entity for legal and tax filing purposes, but not tax paying. Rather it is a form of a conduit where income, losses, credits, and certain deductions are passed along to each partners’ tax return. There is no liability protection for the general partners.
Corporation: A corporation is a separate, legal entity formed through a state charter using Articles of Incorporation. It is authorized to perform primarily all the business activities an individual can, including such things as filing and paying taxes, signing contracts, and making loans. It is formed through the issuance of stock or securities.
Limited Liability Company (LLC): A limited liability company (LLC) is often described as the combination of a partnership and a corporation. This is because an LLC combines the tax advantages and management flexibility of a partnership with the liability protection of a corporation.
Forming an LLC has become a popular alternative for sole proprietors and partnerships that have thought about forming a corporation in order to protect personal assets. LLCs also avoid “double taxation” because the income of the LLC itself is not taxed at the company level. Like a partnership, taxes on profits and deductions of losses are passed through to the individual on the personal tax return of each LLC member (owner).
2. Determine State Business & Professional License Requirements
The State of Florida regulates certain industries and professions. You may verify if your profession is regulated by visiting MyFlorida.com.
3. Name the Business
Availability may be determined via State of Florida’s (Sunbiz.org) entity name registration and/or the US Patent and Trademark Office database.
4. Register with the Florida Department of State, Divisions of Corporations
All legal entities, with the exception of sole proprietors operating under their owner’s full legal names, must file with the State of Florida, Division of Corporations (Sunbiz.org). A Fictitious Name Registration is also required of individuals who do business under any name other than their full, legal personal name or a properly registered corporate name, partnership, trademark, service mark or limited liability company.
5. Apply for your Federal Tax ID number
It is commonly recommended that a Florida business apply for a free Employee Identification Number (EIN) number with the IRS. If your corporation or LLC will be electing to be taxed as an S-Corporation, you will make this election with the IRS as well, using Form 8832 and Form 2553.
6. Register with Tax Authorities
In addition to federal & state payroll taxes, employment taxes, sales taxes are handled at the state & county levels. If you will collect and remit taxes to the State of Florida, you will additionally need to file Form DR-1 at MyFlorida.com/dor.
7. Establish Financial Relationships
As soon as possible, open a separate business bank account and set up your accounting system. Even small businesses are strongly recommended to open separate accounts. This will demonstrate the observation of the corporate formalities required for liability protection to be afforded & greatly reduce the time and expense on bookkeeping or accounting.
8. Protect Your Investment
There are several protective measures that you can take for your business. First, make sure to copyright any original works of authorship (books, drawings, designs, etc.), trademark any branded names used, and patent any inventions. Also, to protect yourself from any potential litigation, you may wish to seek out business liability insurance.
9. Develop Internal Agreements
If more than one person will be involved in the ownership and management of the firm, or if you are developing an LLC, Corporation, or partnership, it is recommended that you seek legal advice in the development of internal agreements.
10. Hire Employees and Outsource
Your time is valuable! Focus on your core business and outsource accounting, administrative, and legal work to experts and staff.
Koontz & Associates PL assists clients throughout Florida in legal matters relating to Residential and Commercial Real Estate (including short sales), Business Law and Tax Law. From their Sarasota offices they serve clients in Sarasota County, Manatee County and throughout Florida.
The information provided in this article is for general informational purposes only and nothing contained herein should be taken as legal advice for any individual case or situation. The information contained in this article is not intended to establish an attorney-client relationship.