Formed as a separate tax entity, corporations are business entities formed completely separate from their owners. The owners of a corporation are called “shareholders” which directly translates to the percentage they own of the company.
Shares can be held by only a few shareholders, but can also be offered to the public. This means a corporation would be considered a "publicly held” company. There are a few types of non-stock corporations as well. These can be for either non-profit or for-profit businesses.
Corporations are able to enjoy most of the rights and responsibilities that individuals possess. Not only can corporations enter contracts, but they can also hire employees, sue, borrow money, loan money, own real estate, and even pay taxes.
How Florida Corporations Work
Starting a corporation is called “incorporating” and involves a few specific processes. Oftentimes these processes can be a deterrent for forming a corporation due to all the rules and regulations involved. Given the complexity of starting a corporation, you may want to seek assistance from a lawyer.
- File Articles of Incorporation: Submit these to the state of Florida.
- Create corporate bylaws: Draft in order to define the policies by which you plan to govern your corporation.
- Elect officers: For every corporation, there is a board of directors that sets policy. They will manage the company as a whole and ensure that the corporation abides by the bylaws.
- Elect the org minutes: These are notes that must be recorded during each meeting. The notes are taken by a specific member of the corporation.
Why Start a Corporation in Florida?
Starting a corporation provides you many benefits. These include:
- Separate entities: Corporations are separate entities from their owners. They are legal entities that can own property, enter into contracts, sue, and pay taxes.
- Professional appearance: When requesting funding, applying for a loan, or purchasing property, having a corporation makes you look much more professional than being a sole proprietor.
- Limited Liability: Corporations are separate entities meaning that the owners are only liable for the amount that they invested in the company. Owners cannot be sued for their personal property due to payments owed to the corporation.
- Privacy: If you form a corporation anonymously, then you will be afforded privacy protection. This is essential if you want to keep your information private from that of your business.
Different Types of Corporations in Florida
S Corp
- Must be domestic corporations and held by residents of the United States.
- Cannot have more than 100 shareholders.
- May only be individuals, trusts, or estates.
- Partnerships, other corporations, and non-resident alien shareholders cannot purchase into an S corp and become a shareholder.
- S corps may only have one class of stock.
C Corp
Corporations that do not make an election to become an S corp will be taxed as a Subchapter C corporation. This form of a corporation has a specific issue. In the business world, this is called “double taxation.”
Double taxation is essentially when a corporation is taxed on its profits. The shareholders of the corporation are then also taxed on the income (known as dividends) that they receive based on those profits.
Non Profit
Most often used by charitable, educational, and religious organizations, a non-profit organization technically does not generate profits. Because of this, non-profit corporations are exempt from taxation. All contributions to the nonprofit corporation can be used on operations, or other plans for the corporation.
Advantages of a Florida Corporations
Limited Liability
Corporations are separate legal entities from their owners. This means that as an owner, there is no legal liability for any debts of the corporation. In the event, the corporation goes bankrupt, or creditors come to collect from the company, the assets of the shareholders cannot be pursued.
Easier to Attract Investors
As a corporation, you take on an extremely professional appearance. Especially if you are looking for funding, or to obtain a loan. By incorporating, you can easily attract investors, along with appearing professional to clients.
Tax Advantages
Tax deductions are available for corporations. These tax deductions also include self-employment taxes.
Unlimited Life
The life of a corporation succeeds its owner. If any shareholders or owners die, the corporation will continue to exist without them.
Easy Public Buy and Sell
When corporations are publicly held they can be traded, purchased, transferred, and sold whenever possible. This can be done without approval from other shareholders.
Disadvantages of Florida Corporations
Maintenance is Difficult vs. LLC
Corporations offer a huge amount of hoops to jump through during incorporation, as well as for maintenance. Each year there are a variety of state fees that you must pay in Florida. Although these are not extremely expensive, they are typically more expensive than that of a Florida LLC.
Potential Double Taxation
C corporations suffer from double taxation, which can be a huge hit to the bottom line of a corporation. Additionally, corporations may not take any tax deductions in regard to the income (dividends) passed on to their shareholders. S corporations do not suffer from double taxation.
Reporting to State, Investors, IRS
Corporations must follow very specific reporting requirements. Although this is helpful to stay organized and provide structure, it can also provide a lot more work as well. Corporations are required to hold meetings and document them. They must also maintain bylaws, and report income properly to the IRS. Other entities do not need to follow these requirements.
Should You Start a Corporation in Florida?
Corporations are best for those who want to protect their assets and have more than two members. Incorporating provides a structure to your business. If you are looking to become a publicly held business, or simply looking for reduced liability, incorporating may be right for you.
