Florida LLCvs Corporation: Everything You Need to Know
Looking at a Florida LLC versus a corporation can help you decide which business structure you'd prefer to form. Each has its own set of advantages and disadvantages, which you should carefully weigh.3 min read
2. Drawbacks to LLCs
3. About S-Corporations
Looking at a Florida LLC versus a corporation can help you decide which business structure you'd prefer to form. Each has its own set of advantages and disadvantages, which you should carefully weigh.
LLCs are considered the simplest business entity. They have become popular in recent U.S. history and are a favorite for small business owners due to the following:
- It doesn't cost a lot of money to form an LLC.
- It's easy to manage an LLC.
- Owners have personal liability protection from business debts and obligations.
The profits from an LLC pass from the company directly to the owners, so it's known as a “pass-through entity.”
The LLC itself doesn't pay taxes. Instead, the owners get a share of the profits, dependent on their share of ownership, or “pro rata” share. They report that as income — minus any business deductions they can take — on their personal tax return. Profits are taxed once at an individual level, not a business one.
There aren't many corporate formalities to deal with for LLCs. When you run your LLC properly, you're protected from personal liability. You can also have multiple owners, or members, without dealing with excessive bureaucracy. If your LLC starts to generate higher profits, the money is considered ordinary income and is therefore subject to self-employment tax.
To form an LLC in Florida, you'll file your Articles of Organization with the state. You're allowed to form an anonymous LLC in Florida but not an anonymous corporation. You have fewer administrative requirements to deal with for an LLC, so you don't have to hold yearly shareholder meetings, and you don't need a board of directors or corporate officers.
Drawbacks to LLCs
Unless you elect for S-corporation designation, you'll be responsible for self-employment taxes on your profits. This can be a drawback of an LLC because this tax rate is more than the tax rate for corporations.
If you don't specifically outline in your operating agreement what happens in the event a member leaves your LLC, then your LLC will be dissolved when the member leaves.
LLCs may have a limited shelf life. In many states, they're not to exceed 30 years. In addition, some states require LLCs to have a minimum of two members. LLCs are not corporations, so they don't have stock or the benefits that come along with it, such as stock ownership and sales.
An S-corp. is often described as a cross between a C-corporation and an LLC. It's a pass-through entity like an LLC, so all profits pass to the company's owners. However, an S-corp. is owned by shareholders, like a C-corp.
One of the biggest advantages to running an S-corp., compared to an LLC, is that S-corp. owners are allowed to collect a reasonable salary — still subject to withholding requirements and FICA taxes. They pay self-employment tax on the salary. Owners can then distribute their remaining net earnings as passive dividend income, which are taxed at a lower rate than the self-employment tax rate.
S-corps aren't an actual business structure. Instead, they're a tax designation that an LLC owner can elect. LLC owners may do this to enjoy the tax benefits that S-corps provide, so they're still able to have flexibility in running their business as well as favorable tax treatment in regards to business income.
A lot of small business owners and entrepreneurs prefer the S-corp. designation because it provides the advantages of the following, all in one unique business type:
- Sole proprietorships
S-corps have basically the same pros and cons of a corporation, but they enjoy the benefits of certain tax provisions. However, you will have more paperwork and corporate formalities to deal with with an S-corp. compared to an LLC.
There are pros and cons to each business structure, so consider what you want for your company when deciding on the type you want to create and run. Some people want to keep things very simple and local, while others may have aspirations for national or multinational growth. It's not enough to only think about tax benefits, as some businesses may be more complicated than you prefer.
If you need help understanding the differences between an LLC and an S-corporation in Florida or another state, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.