LLC vs Corporation Florida: Everything You Need to Know
If you want to compare an LLC vs. corporation in Florida, you’ll need to first understand how each business structure operates.3 min read
LLC vs. Corporation Florida
If you want to compare an LLC vs. corporation in Florida, you’ll need to first understand how each business structure operates. Further, there are both advantages and disadvantages to forming and running an LLC and corporation.
LLC: An Overview
An LLC, also referred to as a Limited Liability Company, is simple to form. This type of business structure is favorable because it is easy to manage, cheap to form, and offers liability protection. In order to form a Florida LLC, you’ll need to file an Articles of Organization with the Department of State.
With regard to LLC taxes, this type of business structure offers pass-through taxation, as the LLC members (owners) report the LLC profits on their own personal tax returns. The amount reported is their share of what they input into the LLC. Notably, multi-member LLCs file an informational tax return for the LLC, whereas single-member LLCs report the profits and losses on Schedule C of the personal tax return. The taxation for LLCs is beneficial, as the company and its members avoid double-taxation that is generally incurred by C-corporations.
Other benefits of LLCs include the following:
- Florida LLCs can distribute profits in many ways.
- LLCs have no restrictions on how many members the company can have.
- Members of the LLC have flexibility in terms of management structure, i.e., member-managed vs. manager-managed.
- Meeting minutes are not required.
- Florida LLCs can have subsidiaries.
- Florida LLCs can be formed anonymously.
- An LLC can elect to be classified as an S Corp for tax purposes.
While there are several benefits to establishing and operating an LLC, there are also some disadvantages, which include the following:
- Fees – LLCs are more expensive to upkeep than general partnerships and sole proprietorships.
- Very little case law.
- Self-employment tax.
- Limited lifetime – unless you indicate in your Operating Agreement, the LLC will be dissolved if a member leaves the company.
Corporation: An Overview
There are two types of corporations – S Corps and C Corps. An S Corp operates like a blended LLC and C Corp. The reason for this is because, like an LLC, the S Corp is also a pass-through business, meaning that all of the profits and losses of the company flow to the owners. But similar to a C Corp, the S Corp is owned by shareholders and not members.
The main benefit of an S Corp is that the owners can pay themselves a salary, while the remaining net profits can be distributed as dividends that will not be subject to self-employment tax.
The C Corp is the traditional-type of corporation. It is the most expensive type of business structure to establish and maintain and has even more formalities than that of the S Corp or LLC. Similar to an S Corp, the C Corp is also organized and managed by shareholders. When it comes to taxation, C Corps are subject to double-taxation. The company is taxed at the corporate level, and then any additional profits that are paid to the shareholders in the form of dividends are then taxed again on the individual level.
There are several advantages to forming a corporation, including:
- Re-investment. Shareholders can invest profit back into the company.
- Legal precedent. There is significant case law regarding corporations, which makes it easier for businesses to know what they can and can’t do.
- Fringe benefits. Corporations can offer a variety of benefits, i.e., stock options.
Differences Between an LLC and Corporation
While each type of business structure has its own advantages, along with some disadvantages, it is important to understand the differences between these two types of business entities. First and foremost, the documentation for forming both types of businesses is different. An LLC must file the articles of organization, also referred to as a certificate of organization or certificate of formation, along with an operating agreement (not always required). A corporation will need to file the articles of incorporation, also referred to as a corporate charter, along with the bylaws.
Another main difference between an LLC and corporation are the costs associated with forming each one. Generally, a corporation pays less than an LLC, but this also depends on what type of industry you operate in, as additional documentation and filing fees could be required.
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