By: Robert W. Bible, Jr., Attorney At Law

Whether you are contemplating starting a new business, or converting an existing business into a new or different entity structure, it is important to have a general understanding of the most common business structures recognized in Florida.

  1. Sole Proprietorship. A sole proprietorship is a business owned and operated by one individual, and no business entity separate and apart from the individual is involved.  If the sole proprietor uses a business name other than his or her given legal name, the sole proprietorship must file with the Florida Department of State a fictitious name notice.  Since a sole proprietorship is owned and operated by a single individual, that individual generally has unlimited liability for the debts and liabilities of the business.  
  2. General Partnership. A general partnership is a business formed and operated by two or more persons.  Though not required, it is recommended that a general partnership file a partnership registration statement with the Florida Department of State.  General partners have equal management rights and generally have unlimited personal liability.  A general partnership, complying with certain preliminary qualification requirements, may file a statement of qualification with the Florida Department of State to be classified as a Limited Liability Partnership.  This election generally reduces the otherwise unlimited liability of a general partner.   Once a statement of qualification has been filed, obligations for any act of a limited liability partnership are limited to the partnership and the partnership assets, and no general partner is personally liable for the obligation by virtue of being a partner. 
  1. Limited Partnership. To form a limited partnership in Florida, a certificate of limited partnership must be filed with the Florida Department of State.  A limited partnership must have at least one general partner, and at least one limited partner.  The general partner has the management rights and personal liability of a general partner in a general partnership.  A limited partner generally has limited liability, but also generally has limited rights of management authority.  The rights, authority and liability of a general partner and limited partner should be defined in a written partnership agreement.  A limited partnership may file a certificate of qualification with the Florida Department of State indicating that it is a Limited Liability Limited Partnership.  Since a limited partnership must be formed through the filing of a certificate with the Florida Department of State, a decision by a limited partnership to be classified as a limited liability limited partnership usually occurs at the time of formation through filing of the appropriate certificate with the Florida Department of State.  Once a limited partnership files the certificate to be classified as a limited liability limited partnership, a general partner of a limited liability limited partnership is not personally liable for partnership obligations solely by reason of being a general partner.
  1. Limited Liability Company. Limited liability companies provide the limited liability of a corporation, with the managerial flexibility of a partnership.  A limited liability company may be formed by one or more persons.  A limited liability company is formed by filing Articles of Organization with the Florida Department of State.  The owners of a limited liability company are classified as members.  A limited liability company is either managed by its owners (“member-managed”) or by one or more managers elected by the owners (“manager-managed”).  The governance of a limited liability company, and the rights and limitations of its members and managers, should be provided within a written Operating Agreement.  Although a limited liability company may be formed by a single owner/member, recent Florida law has significantly removed the limited liability features of a single member limited liability company.  As such, where possible, limited liability companies are generally formed with more than one member.

In Florida, corporations are formed by filing Articles of Incorporation with the Florida Department of State.  A corporation may be formed by one or more persons.  The owners of a corporation are known as stockholders.  The stockholders of a corporation elect a Board of Directors, who generally exercise the corporate powers and direct the management of the corporation’s business.  The Board of Directors, in turn, elects the officers of a corporation, who generally conduct the day-to-day business activities of a corporation.  The stockholders of a corporation generally have limited liability.  The officers and directors generally have no personal liability for the obligations of a corporation through the conduct of their authorized acts on behalf of the corporation.  A corporation should adopt Bylaws to define the rights, duties and limitations of its stockholders, directors and officers.  Both a “C” corporation and an “S” corporation are formed the exact same way in Florida.  The distinction is the particular subchapter under the Internal Revenue Code by which a particular corporation has elected to be taxed.  A Florida corporation which does not make an election to be taxed as an “S” corporation will be taxed as a “C” corporation.  The benefit of electing to be taxed as an “S” corporation is to eliminate a dual tax situation (i.e. both the corporation and its stockholders are taxed as separate taxpayers), and create a “pass-through” tax relationship,  whereby the profits and losses of the “S” corporation “pass through” the entity structure, and are taxed to the stockholders.

 Except for a “C” corporation and a sole proprietorship, all of the other entities (general partnerships, limited partnerships, limited liability companies and “S” corporations) are “pass-through” entities.  This means that the items of income, deduction, profit and loss are not separately taxed to the particular entity, but flow through and are taxed to the owners of the entity (i.e. either the stockholders, partners, or members).   A “C” corporation is a completely separate and distinct taxpayer, and it reports and pays any tax on its own operations and items of income, deduction, profit and loss.  A sole proprietor is not a business entity, but an individual, and a sole proprietor reports his or her income or loss on his or her 1040 income tax return.  Without making a special classification election, a limited liability company is treated for tax purposes the same as either a sole proprietor (single member) or a partnership (multiple members).  General partners and limited liability company members generally pay self-employment tax on their share of the partnership or limited liability company profits passing through to them.  However, many limited liability companies file an election with the Internal Revenue Service to be treated as a corporation, and then in turn file an election to be taxed as an “S” corporation.  By doing so, the limited liability company members are no longer subject to self-employment taxes on their share of profits passing through to them.

The decision to form a business entity should involve careful consideration.  The Florida Department of State provides several “fill in the blank” forms for the creation of business entities. However, formation of a business entity involves much more than choosing a name, listing an address, selecting a registered agent, appointing one or more individuals who will manage the business operations, and electronically filing a “fill-in-the-blank” form.  Tax considerations should be analyzed at the time an entity is formed.  Formation of a business entity with more than one owner should also involve a written agreement which defines the rights, authority and responsibilities of an entity’s owners and those in charge of management, defines the rights and limitations on the ability to transfer ownership interests or conduct a competing business, defines rights and entitlements to the assets of the business entity (such as trade names, trademarks, patents, copyrights, inventions, software, etc.), and defines how to resolve voting deadlocks and rights upon dissolving the entity.

If you have any questions concerning the formation of a business or need information relating to operating an existing business, at Bob Bible Law, we have the knowledge and experience to guide you through these issues.

For more information, contact Robert W. Bible, Jr., Attorney At Law at 727/538-7739 (office), 727/710-5166 (cell) or by email at: