Difference Between LLC and Inc in Florida: Everything You Need to Know
Knowing the difference between LLC and Inc. in Florida is one of the first questions an entrepreneur may ask when starting up a business in Florida.3 min read
2. What is a Corporation?
3. What is a Limited Liability Company?
4. What is an S Corporation?
5. Differences Between an LLC and a Corporation
Difference Between LLC and Inc. in Florida
Knowing the difference between LLC and Inc. in Florida is one of the first questions an entrepreneur may ask when starting up a business in Florida. Both an LLC, or “limited liability company” and a corporation have their advantages and disadvantages, and they are both similar in many ways. However, the differences between them are significant enough that it is important to do your research before you commit to either.
What is a Corporation?
A corporation is a type of business structure that is commonly chosen by bigger businesses, but any size business can register as a corporation. Typically, the business starts out as a sole proprietorship or a partnership and evolves into a state-recognized corporation. Corporations are considered legally distinct, separate entities from their owners.
- Structuring your business as a corporation limits your personal liability.
- Incorporating your business has tax advantages.
- Division of ownership is easier for a business that is incorporated.
What is a Limited Liability Company?
A limited liability company, or “LLC,” is one of the simplest types of business structures you can form. Because it is easy to form, it has become very common for nearly every type of business to structure itself as an LLC. Forming an LLC does not require a ton of money; it is fairly inexpensive to register. It is also easy to manage.
Similar to a corporation, an LLC provides the owner(s) with protection from being held personally liable for any of the LLC’s business debts or legal liabilities. Because the state recognizes an LLC as a separate legal entity, a court very rarely “pierces the corporate veil,” and allows creditors to go after the LLC’s owners’ personal assets.
In terms of tax advantages, LLCs are considered “pass through” entities. This simply means that the LLC itself is not subject to taxation. Rather, the LLC’s owners report the business’s income and losses on their own personal tax return, in addition to reporting the amount they received from the LLC as ownership profits. Thus, instead of being subject to double taxation, where the owners would have to pay taxes on the LLC and their own personal taxes, the LLC’s taxes are passed through to the owner’s personal taxes.
What is an S Corporation?
An S corporation is a mix between a limited liability company and a corporation. Similar to an LLC, an S corporation avoids double taxation and is considered a pass through entity. The S Corporation itself is not taxed but rather flows through to the owners. However, an S Corporation is like a C corporation in that its owners are actually shareholders.
One of the S Corporations main advantages over an LLC is that the S Corporation’s shareholders pay themselves a reasonable salary, but any of the business’s income left over is distributed as dividend income that is not subject to self-employment taxes. However, one of the benefits of an LLC over the S Corporation is that there is far less paperwork and formal requirements to maintain the LLC.
A unique fact about LLCs is that they can elect to be treated like an S corporation for tax purposes. All they must do is file a form with the Internal Revenue Service (“IRS”)and from then on, the IRS will tax the LLC as if it were an S Corporation. This tax flexibility of an LLC, combined with the overall simple maintenance requirements, is another reason why it is so common.
Differences Between an LLC and a Corporation
Although an LLC and a corporation have similar characteristics, a business owner needs to be aware of the differences. Some of the biggest differences between the two types of business structures include:
- The amount of formal documentation required
- The financial obligations of formation and maintenance
- The amount of taxes the business is subject to
- The amount of flexibility to manage the business
- How the business can be transferred between owners
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