Do I Incorporate or Form an LLC in Florida?

LLCs 

What Are They?

An LLC combines a corporation’s liability protection with a partnership’s operational flexibility. It provides business owners, or “members,” with limited liability protection, meaning their personal assets are shielded from the company’s debts and legal obligations. 

This protection ensures that in the event of lawsuits or financial distress, the personal assets of its members remain separate from the liabilities of the business.  

Advantages of Forming an LLC in Florida

• Limited Liability Protection: Like in other states, an LLC in Florida offers personal asset protection for its members. This means that if the company faces legal actions, debts, or financial liabilities, the personal assets of the members are generally shielded from the company’s obligations.
• Pass-Through Taxation: Profits and losses generated by a Florida LLC are passed through to the personal income tax returns of the members, avoiding double taxation. This setup can result in substantial tax savings, making it an attractive choice for businesses seeking efficient tax planning.
• Flexibility in Management and Ownership: LLCs can be owned by individuals, other LLCs, corporations, or even non-US residents, making them an inclusive choice for various types of business arrangements. Additionally, the management of an LLC can be organized based on the preferences and needs of the members. 

Corporations

What Are They?

Like in other states, a corporation in Florida is a legal entity distinct from its owners or shareholders. It is formed by filing certain documents with the Florida Department of State and is granted certain rights, privileges, and legal protections. Corporations are popular business structures due to their established structure, credibility, and growth potential.

Benefits of Incorporating in Florida

• Liability Protection: The personal assets of the shareholders are typically shielded from the company’s debts, legal actions, and financial liabilities. This protection ensures that the personal wealth of the shareholders remains separate from the corporation’s obligations, offering a safety net in the event of unforeseen challenges.
• Tax Planning Opportunities: Opting for Subchapter S Corporation (S Corp) status with the IRS allows corporations to enjoy pass-through taxation similar to that of an LLC, where profits and losses are passed through to the personal tax returns of the shareholders.
• Perpetual Existence: Unlike sole proprietorships or partnerships, the existence of a corporation is not tied to the lives of its shareholders. Changes in ownership, such as the sale or transfer of shares, do not affect the corporation’s ongoing operations. This ensures that the business can continue to operate regardless of ownership changes.

LLCs vs Corporations in Florida: Factors to Consider

Liability Protection

Forming an LLC provides members with limited liability protection, ensuring personal assets are shielded from business debts and legal liabilities. This protection guards against individual financial risk and is advantageous for businesses with potential legal exposure.

Corporations also offer limited liability protection, separating personal assets from corporate obligations. This feature especially appeals to businesses in high-risk industries or those prone to lawsuits.

Tax Implications

An LLC in Florida can greatly benefit from pass-through taxation, where profits and losses are reported on personal tax returns of the members. This structure avoids double taxation, preserving more of the earnings of the business for the owners.

Corporations face the possibility of double taxation, as corporate profits are taxed at the entity level, and dividends are taxed when distributed to shareholders. However, electing S Corporation status can provide pass-through taxation, mitigating this concern.

Ownership and Management Structure

LLCs offer flexibility in ownership and management. Members can structure the management as they see fit, whether managed by members directly or appointed managers. This adaptability suits businesses with varying levels of member involvement.

In contrast, corporations have a structured hierarchy with a board of directors overseeing major decisions and officers handling day-to-day operations. This setup can provide a clear management framework but might be less flexible.

Funding and Raising Capital

Although LLCs in Florida can raise capital, they might face limitations compared to corporations. More often than not, investors might be less inclined to invest due to the lack of stock options and the informality of the structure.

Corporations have an advantage in attracting funding due to their ability to issue different classes of stock. This feature facilitates equity financing and appeals to investors seeking ownership through shares.

Long-Term Goals and Exit Strategy

An LLC could be suitable for businesses with less complex growth goals or that plan to remain relatively small. Dissolving or transferring ownership in an LLC is easier, accommodating businesses with simpler long-term objectives.

Corporations in Florida are well-suited for businesses with expansive growth ambitions, as they offer more structured frameworks for raising capital, issuing stock, and attracting larger investments. Their enduring existence facilitates more complex expansion plans.

Other Considerations for Corporations and LLCs in Florida

State Filing Fees and Requirements

When forming an LLC, you must file the Articles of Organization with the Florida Division of Corporations. The filing fee for the Articles of Organization is upfront for establishing your business. Florida also requires LLCs to file an Annual Report on or before May 1 of the current year. Its filing fee varies based on the revenue of the business.

Incorporating a business in Florida involves filing the Articles of Incorporation. Similar to LLCs, corporations need to file an Annual Report annually. Several factors, such as authorized shares and par value, determine the Articles of Incorporation fee.

Ongoing Compliance Obligations

Florida’s LLCs must comply with the state’s ongoing reporting requirements. This includes filing an Annual Report, which is more than just a financial report – it’s a mandatory filing that updates the state with relevant details regarding your business. Falling to submit the Annual Report by the deadline can result in penalties or even the dissolution of your LLC.

Corporations in Florida also face the requirement of filing an Annual Report, which is a legal obligation. This report provides updated information about your corporation’s officers, directors, and other key details. Ensuring timely and accurate filing can help maintain good standing.

Business Licenses and Permits

Depending on the nature of your business, you might need to obtain specific licenses or permits at the county or municipal level in Florida. These requirements can vary widely based on your industry and location, among others. 

Similar to LLCs, corporations must adhere to local and industry-specific licensing requirements in the state. Ensuring you have all the necessary permits and licenses is instrumental to avoiding disruptions in your business operations.

Choosing Between an LLC and Corporation in Florida

The decision to incorporate or form an LLC in Florida will depend on your business goals, risk tolerance, and long-term vision. While LLCs offer flexibility, simplicity, and pass-through taxation, Corporations provide enhanced credibility, access to capital, and a structured hierarchy. 

If you are still on the fence, let our business formation experts at NCH assess your specific circumstances and advise you on the entity type that best aligns with your business goals.

Call us at 1-800-508-1729 to start forming an LLC or incorporating in Florida!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.