BEST PRACTICES/BUSINESS LAW
CHOOSE THE RIGHT STRUCTURE WHEN
STARTING YOUR BUSINESS
Starting and running a business requires making
many important decisions. The very first decision
faced by many business owners is what kind of entity
should be formed to operate their business. In Florida,
there are a number of available options. While the
decision can be daunting, the variety in flavor of
business entities provides the opportunity to choose
a type of entity suited to your particular needs. In determining
which entity is right for you, there are many
tax and non-tax factors to take into consideration.
TYPES OF ENTITIES
There are four primary classifications of business
entities in Florida: (i) sole proprietorships, (ii) partnerships,
(iii) limited liability companies (LLCs) and (iv)
corporations. The partnership category is further
subdivided into four different types of partnerships:
(i) general partnerships, (ii) limited partnerships, (iii)
limited liability partnerships and (iv) limited liability
limited partnerships. Additionally, if your business will
provide a “professional service” to the public, which
requires getting a license or other legal authorization
(for example, a medical practice), then you may form
a special type of LLC or corporation.
ULTIMATELY, THE TYPE OF BUSINESS
ENTITY YOU CHOOSE IS A PART OF
NOT JUST YOUR PRESENT BUSINESS
PLAN, BUT ALSO POTENTIALLY
YOUR ESTATE PLAN OR BUSINESS
SUCCESSION PLAN. DIFFERENT
BUSINESS ENTITIES CAN PROVIDE
DIFFERENT STRATEGIES FOR PASSING
INTERESTS TO THE NEXT OWNERS, BE
THEY BUYERS OR YOUR HEIRS.
TAX FACTORS
For tax purposes, there are three primary classifications
of business entities: (i) disregarded entities, (ii)
partnerships, and (iii) corporations. While the classification
of a state law partnership or corporation is
self-explanatory, the classification of an LLC hinges
on the number of members and the election of those
members. A single-member LLC may be either a disregarded
entity or elect to be treated as a corporation.
36 TCBusiness.com
DANA M. APFELBAUM
Dana M. Apfelbaum, a Treasure
Coast attorney with the law
offices of Dean, Mead, Minton &
Zwemer, practices in the areas of
tax/business law, estate planning
and business succession planning.
Ms. Apfelbaum also represents
fiduciaries through all stages of
probate, estate and trust administration.
She may be reached at
dapfelbaum@deanmead.com.
A multi-member LLC may either be a partnership
or elect to be treated as a corporation. Further, a
corporation meeting certain eligibility requirements
can elect to be treated as an “S” corporation.
Generally speaking, the taxing regime for business
entities depends upon whether such entity is a
passthrough entity or a taxable entity. Passthrough
entities (partnerships and “S” corporations) pass
profits and losses on to their owners, who then
report such items on their individual tax return. On
the other hand, taxable entities, such as corporations
(other than “S” corporations) must pay federal
and state income taxes. Although Florida does not
impose an individual income tax, it does impose
a corporate income tax. In addition, the owners of
taxable entities are subject to federal income tax on
any dividends received, resulting in a second level
of taxation.
NON-TAX FACTORS
With the exception of general partnerships and
sole proprietorships, each type of entity offers
its owners some degree of protection from the
liabilities of the entity. Additionally, some provide
protection to the entity and other owners from the
liabilities of the owner. While liability protection is
an important consideration, other important nontax
considerations include the type of management
structure desired, restrictions on transferability, and
the costs associated with formation and maintenance
of the entity.
Ultimately, the type of business entity you choose
is a part of not just your present business plan, but
also potentially your estate plan or business succession
plan. Different business entities can provide
different strategies for passing interests to the next
owners, be they buyers or your heirs.
Due to the many important factors that should
be considered in choosing a type of business entity,
you should consult with a qualified business and tax
attorney to make sure that you select an appropriate
entity that is suited to meet your needs. v
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