Florida LLC vs Corporation: Choosing the Right Business Structure for Small Business Owners

Selecting the right business structure is one of the first crucial decisions for any small business owner. 

Two of the more popular business formation options in Florida are the limited liability company (LLC) and the corporation.

While each structure has its own legal, financial, and operational implications, it is important to select the entity type that best suits your specific goals, objectives and company vision.

This article explores the differences between the Florida limited liability company and the Florida corporation as it relates to various elements that are critical to new business owners.

Florida LLC vs Corporation Descriptions

LLC (Limited Liability Company): An LLC is a fusion between a corporation and a partnership that provides its members (i.e. owners) with personal liability protection while allowing for flexibility in taxation, as well as management of the entity itself. Florida LLCs are rather popular with small businesses because of the ease with which they may be formed and operated.

Corporation: Conversely, a corporation is an entity in which the shareholders (i.e. owners) are separate from the structure itself. Corporations offer personal liability protection, which in some instances is stronger than that of an LLC, as well are more formal and rigid structures. They can be in the form of a C-corporation or an S-corporation, which have different ownership rules and taxation exposure. 

Formation and Maintenance Requirements

LLC: Forming an LLC in Florida requires the filing of Articles of Organization with the Florida Department of State while concurrently paying the $125.00 filing fee. While Florida law does not require that an LLC is accompanied by bylaws and annual meetings like a corporation, having a properly drafted operating agreement is recommended. Each LLC must file an annual report each year to ensure that the company’s information is accurate and updated with the state. This yearly filing is accompanied by a fee of $138.75.

Corporation: The formation of a corporation in Florida is more complex. Similarly, it involves the filing of the Articles of Incorporation with the Division of Corporations and paying the $70 filing fee along with the yearly annual report and accompanying fee. However, Florida corporations must adopt bylaws, hold annual board meetings, as well as keep records of all corporate actions. This being the main difference with LLCs.

Governance of Florida LLC vs Corporation

LLC: Another appealing feature of an LLC is the flexibility it provides in its management structure. Florida LLCs may be run directly by its members (known as member-managed LLCs) or they may be run by third-party managers who may or may not be members (known as manager-managed LLCs). Small business owners in Florida typically find this flexible structure to be very attractive. Unlike corporations, however, Florida LLCs are not required to hold yearly meetings or even have a board of directors, although they may.

Corporation: Again, small business owners in Florida usually find that corporations are more rigid in terms of their management structure. Florida corporations are required to have a board of directors that oversees the actions of the officers who manage the daily operations of the entity. Officers may include roles such as a corporation’s president or CEO. Further, corporations are required to hold regular/yearly board meetings and shareholder meetings, as well as keep detailed minutes of those meetings. For this reason, many believe that a corporation is more suitable for larger businesses with perhaps more involved ownership arrangements. 

Liability Protection

Small business owners in Florida benefit greatly from personal asset protection when forming both Florida LLCs vs corporations.

LLC: In Florida, the liability protection aspect of LLCs is governed by Florida Statute § 605. 0304 which provides that the debt obligation or other liability of an LLC rests solely on the LLC itself. In other words, members or managers of an LLC in Florida are not personally liable for the debts or liabilities of the LLC solely by being a member or manager. In cases where the member or manager has personally guaranteed a loan or committed some form of fraud or illegal act, however, may lead to that member incurring liability. It should be noted, however, that judgment creditors of Florida LLCs have more remedies available to them in single-member LLCs than in multi-member. For this reason, careful consideration must be taken when forming a single-member LLC in Florida. 

Corporation: On the other hand, corporations provide greater liability protection because they are considered entirely separate entities from the shareholders or owners. As a result, shareholders in Florida corporations are typically not personally liable for business debts beyond their investment in the company itself. Further, this distinction makes the piercing of the corporate veil, which is essentially the removal of this sought-after protection, far more difficult in a corporation than in an LLC. 

Taxation for Florida LLC vs Corporation

Taxation is perhaps the more significant area in which LLCs and corporations differ.

LLC: Florida LLCs are not taxed directly. The profits or losses are passed through to the members, who report them on their personal Federal income tax returns. Typically, single-member LLCs are taxed as sole proprietors while multi-member LLCs are taxed as partnerships. However, Florida LLCs may opt to be taxed as an S-corporation or a C-corporation.

Corporation: C-corporations are subject to double taxation in that the corporation pays taxes on its profits at the federal corporate tax rate and the shareholders are also taxed when they receive dividends. While this may be perceived as a negative, it often proves beneficial for corporations focused on growth. Conversely, S-corporations, which are formed by filing IRS form 2553 within the requisite timeframe, are treated similarly to LLCs with pass-through taxation. However, S-corporations have very restrictive eligibility requirements such as a limit of 100 U.S. citizen/resident shareholders. 

Ownership and Investment

LLC: LLCs are permitted to have any number of members, which may be individuals, other LLCs, or corporations. Also, as alluded to previously, LLCs in Florida may be single-member or multi-member entities. Ownership of a Florida LLC is usually governed by the terms of its operating agreement or Florida statute if there is none. For this reason, it is favored for its flexibility. However, it proves to be problematic for entities seeking to raise capital from outside parties due to its lack of stock structure, etc. 

Corporation: Conversely, Florida Corporations issue stock to its shareholders and investors, thereby making it easier to raise capital by selling shares. C-corporations can have an unlimited number of shareholders and can issue varying types of stock. This makes it a very attractive option for both owners who are growth-oriented and investors alike. While S-corporations share similar features, they are limited to 100 shareholders, all of whom must be U.S. citizens or residents. 

Flexibility and Scalability

LLC: Generally speaking, Florida LLCs are usually more attractive to smaller, closely held businesses because they allow for simplicity of management and operations. However, they are not conducive to entities seeking growth or attractiveness to investors.

Corporation: C-corporations are usually better suited for the growth of a business given the ability to issue stock options and handle complex ownership arrangements. For this reason, they are usually more than what is needed for the typical small business. 

Conclusion: Florida LLC vs Corporation: Choosing the Right Entity for Your Florida Business

When deciding which entity type would be best for your business, it is imperative to consider your long-term goals, the size and type of business, potential tax considerations, as well as the degree of flexibility needed to manage and operate the entity.

A Florida LLC may be right for your entity if:

• You prefer a simpler and more flexible business entity.
• You want to avoid the formalities and rigidity of corporate governance.
• Pass-through taxation and a need to avoid corporate-level taxes is imperative.
• Significant outside investment is not a part of your business plan.

A Corporation may be right for your entity if:

• The formalities required to operate a corporation are not problematic.
• You intend to grow your business rapidly and raise capital via investors.
• You want the option to issue stock and possibly go public.
• You prefer to keep profits within the business for growth purposes, even if that results in double taxation.

Before finally selecting between a Florida LLC vs corporation, it is imperative to consult with both your accounting and legal professionals. This will ensure that your selections best align with your company’s goals and long-term vision. To see how best we may be able to assist you with this selection, contact us here for more information.