Many people think that the formation of an entity is as simple as filing a few documents with the proper authority and hanging a sign with a company logo.
However, proper entity formation goes well beyond the inception of a business. The key to a well-designed entity formation strategy is enough detailed planning to ensure that there is a defined and documented procedure the many contingencies that will arise.
If you're considering starting a business there are three important issues to consult with your Florida attorney about: (1) proper formation; (2) the duty to collect and pay taxes; and (3) whether or not you need to register for an EIN.
Here are some of the basics regarding business formation. Consulting with an attorney throughout your business planning process can make the formation easier and help you avoid legal problems in the future.
What You Need To Know First
What Type Of Business?
Initially, there are several types of business entities available in Florida, each with their own set of requirements for successful formation. The most common options are:
Limited Liability Company (LLC): LLC's give you personal liability protection, and therefore may be a good option for you if you want management flexibility. It could also be a good option if you wish to minimize ongoing formalities associated with directors, shareholders, and/or you want flexibility for sharing profits among owners.
Corporation: Corporations generally take two forms, either for-profit or nonprofit. A “for-profit corporation” is a corporation created for the purpose of conducting business and distributing income to the owners of the corporation. A “nonprofit corporation” is a corporation normally thought of as one created for religious, charitable, educational or artistic purposes. However, the label “nonprofit” Corporations file taxes as a separate taxpayer, with income and expenses taxed to the business instead of the owners. Additionally, corporate profits are distributed to the owners as dividends which are taxed at both the corporate and personal level.
Partnerships: There are several partnership types including Limited Partnerships, Limited Liability Partnerships, and Limited Liability Limited Partnerships. The differences between the various forms of partnerships can be complicated and it is best to consult with a business formation attorney when determining which kind of partnership to form. Whatever form chosen, a partnership should have a “partnership agreement,” similar to an LLC operating agreement and corporate bylaws, to govern the relationship between the partners.
What Taxes Do I Need To Pay?
Once an entity is formed, there are tax consideration on both the state and federal level. In Florida, business owners must consider:
Sales and Use Tax: Sales tax applies to the sale, rental, lease, or license to use goods, certain services, and commercial property in Florida (unless the transaction qualifies as exempt). If a business will have taxable transactions, it must register with the Florida Department of Revenue before conducting business.
Unemployment Tax: Unemployment compensation gives partial, temporary income to workers who lose their jobs through no fault of their own, and are able and available for work. Employers pay for unemployment compensation through a tax administered by the Department of Revenue. Businesses that are required to pay this tax must register with the Department before conducting business.
Corporate Income Tax: Corporations and entities that do business, or earn or receive income in Florida, including out-of-state corporations, must file a Florida corporate income tax return (unless the business qualifies as exempt).
Other Taxes: Other taxes administered by the Florida Department of Revenue include communications services, documentary stamp, fuel, gross receipts, insurance premium, pollutants, severance, and solid waste and surcharge. Business owners should contact a Florida attorney or the Florida Department of Revenue to learn more about these taxes and whether they apply to their entity.
Who Needs An EIN Number?
On the federal level, new business owners must learn if they need to obtain an employer identification number (EIN) and pay the following taxes:
Income Tax: All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form used depends on how the business is organized. LLCs have several options regarding how they wish to be taxed under the IRS “check a box” regulations.
Employment/Payroll Tax: When a business has employees, the employer has certain employment tax responsibilities they must pay and forms they must file. Employment taxes include: Social Security and Medicare taxes, federal income tax withholding, and federal unemployment (FUTA) tax.
Self-Employment Tax: Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. An experienced business formation attorney can often help a business owner to minimize or eliminate self-employment tax.
How We Can Help You
When our entity formation clients exit our office they leave with a custom-tailored strategy for operating their business from start to finish.
When our clients exit our office they leave with a custom-tailored strategy for successfully operating their business from start to finish. Our legal analysis goes beyond inception to deal with issues such as the possibility of litigation, establishing a deferred compensation arrangement, continuance of your business in the event of unforeseen circumstances, protecting your business and personal assets and your transition strategy.
You want to give your business the best chance of success from the start, so contact Ourednik Law Offices today.