When starting a business the legal form you choose will have a significant impact on how your company will run, be taxed and protect you from liability. The sole proprietorship is the most popular form for operating a business, with most small start-up ventures operating in that form. The main problem with a sole proprietorship is the unlimited liability of the owner. The sole proprietorship is usually unacceptable for operating a business since it subjects the owner to personal liability.
The next form is a “limited liability company. An LLC is an entity separate from its owners, so ownership can involve one, two or more owners. As a separate entity, the LLC (not its owners) is responsible for the liabilities of the business. If the business fails you may lose your investment, but your assets are not at risk. Corporations are the oldest form of business entity and as a result, people are generally at ease with a corporation.
Corporations provide the strongest protection against personal liability but may or may not have the same tax advantages of an LLC. An “S-Corp.” is made for small business and can’t have more than 100 shareholders; however, it does feature pass-through tax treatment like an LLC. A “C” corporation has a big disadvantage for start-ups; that is, that the income or loss of a C corporation only taxable to the corporation and does not pass through to shareholders. Shareholders cannot use start-up or other losses to against income received by sources other than the corporation. Neither an LLC nor a corporation is the best choice for all businesses.
The form of entity that is appropriate for your business will depend upon your situation. One would be well advised to seek counsel before starting up a company because the tax and legal ramifications of the choice are significant.
We are often contacted for business advice regarding forming, operating and dissolving corporate entities, partnerships and limited partnerships by businesses operating outside of Florida – from just across the Florida border or, due to the reach of the internet, by businesses located many states away. Matters involving the creation or dissolution of businesses “created” within another state are often referred to attorneys located in the business’ home state. Why is this? It is because a business entity is considered a “creature” of the state in which it is created–with its governance, creation, operational restrictions and dissolution established and governed by the rules of that state. A Florida Corporation operates under the rules established by the Florida legislature. Further, as the establishment of partnerships is an area fully given to the states, each state and the District of Columbia has its own statutes and common law principles that govern partnerships, both their establishment and dissolution.
The formation and operation of Florida partnerships is governed by Chapter 620, Florida Statutes. The Florida Revised Uniformed Limited Partnership Act was enacted in 1986. In 1995, the Florida Legislature completely rewrote Florida partnership law and repealed numerous sections of the Uniform Partnership Act. The Florida Legislature also adopted the Revised Uniform Partnership Act, as well as authorized limited liability partnerships. As of January 1, 1998, the Revised Uniform Partnership Act governs all Florida Partnerships.
Dissolution under the Revised Uniform Partnership Act: Pursuant to the Revised Uniform Partnership Act, a partnership is dissolved and its business must be “wound up” upon the occurrence of certain events:
Contacting a Business Attorney is critical if considering dissolving a partnership, as the attorney can assist with necessary documentation and assist with thinking through the issues that may arise as a result of the termination. You will need to consider and address the options available to the individual partners. For example, your business may be operating under an individual partner’s name (Jon Smythe’s Realty Group) and, upon leaving the Partnership, Mr. Jon Smythe may wish to ensure that no business continues to operate under that same name after the Partnership is dissolved. If you anticipate a possible name change for your business, certain paperwork may need to be filed to address the Partnership’s fictitious name filings. Consideration should be given to securing an accounting of the assets and liabilities of the partnership and determining how those assets and liabilities will be allocated between the partners upon dissolution. If one partner is being bought out by other partners, a contract should be drafted specifying what is being purchased and identifying any releases of liability.