Corporations are legal entities that can enter contracts, borrow or loan money, sue, hire employees, and pay taxes. Corporations are given most of the rights and responsibilities that individuals possess. Despite this, they are taxed in a completely different manner from that of an individual.
Sole-proprietorships and partnerships are given pass-through taxation, while most of the time, corporations have shareholders that own the company. These shares can be held privately or publicly. There are various rules and regulations that corporations must follow to operate,
How to Start a Corporation in Florida
Starting a corporation is defined as the process of "incorporating". Incorporating requires the filing of different documents. This is much more complicated than simply forming a sole proprietorship or partnership. There are various aspects of a corporation as well.
- Submit articles of incorporation: The articles of incorporation should be submitted to the state of Florida.
- Corporate bylaws: These are drafted in order to define the policies of the corporation, and how the corporation is run.
- Structure: Corporations have a specific method in how the business is run. On the top of the corporation is a board of directors that sets policy and manages the company as a whole. The board ensures that the corporation is acting according to the bylaws, and also that the corporation complies with all rules and regulations of the law. Corporate executives are one level below the board. They run the formation of stock structures and run the results of double taxation for a c corp.
- Elect the org minutes: Meeting minutes are notes that are recorded during meetings. These are legally required and must be recorded by a member of the corporation.
Getting Help Starting a Corporation
As compared to starting an LLC, corporations are more complicated. This is mainly because there is a specific structure involved. You will need to appoint directors and a registered agent, create bylaws, issue stock, file articles of incorporation. There are also IRS forms to be filed, and you may even consider speaking to an attorney to do this.
Different Types of Florida Corporations
There are 3 different types of corporations available in Florida.
C Corp
The most commonly formed corporation is a C Corporation. C corporations can be formed more easily than that of an S corp. Owners are given profits and are taxed at the individual level when it comes to a C corp, but at the same time, the corporation is taxed as a business entity. This leads to double taxation.
Non Profit
Any corporation that acts in a charitable, educational, or religious organizational manner is considered a non-profit organization. These corporations are exempt from taxation, and the entity may spend all its profit on operations, expansion, or future plans.
S Corp
Every S Corp was once a C Corp. The main difference between an S Corp and a C Corp is how they are taxed. Profits are only taxed when they are passed down to shareholders. These shareholders are then required to pay taxes on their own personal tax returns. This is beneficial because it avoids double taxation.
To form as an S Corp, a corporation must adhere to the following:
- May not have more than 100 shareholders
- All shareholders must be individuals, trusts, or estates
- Shareholders may not be partnerships, other corporations, or non-residents of the United States
- May only one class of stock
Advantages of a Corporation
Professionalism
One of the main benefits of a corporation is the professional appearance that it affords the business. If you are looking to obtain funding, applying for a loan, or looking to be taken seriously, having a corporation helps you to do that. You may also be able to establish that credibility with potential customers, employees, and vendors more easily.
Separate Entities
Corporations are separate entities from their owners. This means that a corporation can enter into contracts, pay taxes, and even own property. Instead of doing this under the name of a single owner, it can be done in the name of the corporation (and various owners).
Easy Transfer of Ownership
When corporations are publicly held, they can be transferred without approval from other shareholders.
Limited Liability
Because corporations are separate entities, owners are only liable for whatever they have invested in the company. This means that if the corporation is sued, creditors cannot come after the personal assets of the owners for payments owed by the corporation.
Privacy
If you form a corporation anonymously, it allows you to keep your name separate from that of the corporation. This can keep your name hidden should creditors look for someone to pursue for company debts.
Tax Advantages
There are many tax advantages for corporations. This includes deductions, avoiding taxes on the cost of health insurance premiums paid to employees, and saving on self-employment taxes. Corporate income is not subject to social security, worker’s compensation, or medicare taxes.
Disadvantages of a C-Corporation
When you decide to form a corporation one of the disadvantages is the formation standards and maintenance required. You are required to file the articles of incorporation in the state, but then also continue to pay ongoing state fees each year. Although they are not a huge expense, they are more expensive than a sole proprietorship or LLC.
There is another extreme downside to forming a corporation, this is double taxation. This occurs for corporations when they are first taxed on their profits as a business, and then the owners are taxed again on their personal income. Corporations cannot claim a deduction on their taxes for any dividends passed on to owners. The only way to avoid this is to form as an s corp with the IRS.
Finally, one of the most frustrating aspects of forming a corporation is the required tasks and record keeping. These include documenting meetings, as well as maintaining bylaws. Other entities do not need to abide by these formalities like corporations do.
Should You Start a Corporation in Florida?
If you are a start-up that plans to go public, or simply a business that wishes to protect the assets of its owners, incorporating can offer various benefits. Specifically, incorporating in Florida will allow you to avoid liability, and set up your business as a separate entity to obtain new shareholders or secure new funding.
Starting a corporation is not an easy task to take on by yourself. We recommend the help of a trusted business law attorney to help complete paperwork and meet deadlines. If you need an extra hand, we can help.
