Starting your own business can be one of the most liberating decisions you'll ever make. Imagine spending your day doing something you enjoy, setting your own schedule, and enjoying the fruits of your labor. But, before you can picture yourself being your own boss, ask yourself: what does it take to form a business? Besides the obvious, such as deciding on a product or service, there are other factors to consider. One of the most important is deciding on a business entity that is right for YOU. For those of you that have already started your own business and skipped this step, you may have inadvertently chosen a sole proprietorship: a one person business which is oftentimes created quite informally. In fact, because of its simplicity, many have entered into this form of doing business without even knowing it. Florida does not require any formal filings to form this business entity. For example, imagine yourself making and selling jewelry as a "hobby". You run the business by yourself, and pocket all of the profits. Without even realizing it, you have formed a sole proprietorship. Many individuals conducting business this way do not realize that a sole proprietorship is a legally-recognized way of doing business with many legal and tax implications. You might be wondering: if no formal filings are required, then what else might I be responsible for as a sole proprietor? For starters, even though you are not required to file with the Department of State to form this entity, if you are operating your business under a "trade name", such as ABS Jewelers, you may be required to register a Fictitious Name with the State. Additionally, the name must be advertised at least once in a newspaper in the county in which the principal place of business will be located.
What about tax implications? As a sole proprietor, you are responsible for obtaining applicable occupational licenses and paying self-employment taxes. All of this aside, many individuals still view this way of doing business as advantageous, but need to keep in mind that it can have some negative consequences. First, a sole proprietor is liable to the full extent of the proprietor's assets for the debts of the business. In other words, there is NO LIMITED LIABILITY, and your personal assets can be used to satisfy business debts. Second, you are limited to running your business by yourself. If you decide to open a business with someone else, you would no longer be considered a sole proprietorship, but instead a general partnership (and governed by the Revised Uniform Partnership Act).
So what other business entities are there to choose from? There are many business entities, and two of the most common are:
- Corporation - must file Articles of Incorporation with the Florida Department of State; shareholders enjoy limited liability for the corporation's debts; perpetual existence; can raise capital by selling shares; can avoid some of the negative tax implications by applying for Sub-chapter S status with the IRS (if meets certain requirements); other corporate formalities must be followed
- Limited Liability Company - must file Articles of Organization with the Florida Department of State; provides limited liability for its owners; availability of pass-through income taxation; relatively new way of doing business
When choosing a business entity, make sure to evaluate the goals of your business. Whatever entity you choose, make sure to educate yourself about the requirements and obligations of operating a business.
For those of you taking the plunge, good luck on your business endeavors! Remember if you have any questions, consult an attorney for guidance.
What about tax implications? As a sole proprietor, you are responsible for obtaining applicable occupational licenses and paying self-employment taxes. All of this aside, many individuals still view this way of doing business as advantageous, but need to keep in mind that it can have some negative consequences. First, a sole proprietor is liable to the full extent of the proprietor's assets for the debts of the business. In other words, there is NO LIMITED LIABILITY, and your personal assets can be used to satisfy business debts. Second, you are limited to running your business by yourself. If you decide to open a business with someone else, you would no longer be considered a sole proprietorship, but instead a general partnership (and governed by the Revised Uniform Partnership Act).
So what other business entities are there to choose from? There are many business entities, and two of the most common are:
- Corporation - must file Articles of Incorporation with the Florida Department of State; shareholders enjoy limited liability for the corporation's debts; perpetual existence; can raise capital by selling shares; can avoid some of the negative tax implications by applying for Sub-chapter S status with the IRS (if meets certain requirements); other corporate formalities must be followed
- Limited Liability Company - must file Articles of Organization with the Florida Department of State; provides limited liability for its owners; availability of pass-through income taxation; relatively new way of doing business
When choosing a business entity, make sure to evaluate the goals of your business. Whatever entity you choose, make sure to educate yourself about the requirements and obligations of operating a business.
For those of you taking the plunge, good luck on your business endeavors! Remember if you have any questions, consult an attorney for guidance.
