How to Incorporate in Florida vs. How to Start a Florida LLC
A Guide to Choosing the Best Business Entity in Florida
If you’re starting a business in Florida, you’ve probably realized one of the most important initial decisions you’ll make is which type of business structure is best for you. The most common business entities in the US are the Limited Liability Company (LLC) and corporation, and whether it’s taxes, investors, or business size, making the decision requires some complex consideration. This Florida LLC and incorporation guide will help you to understand both business entities so you can make the right decision for your business. Here you’ll learn the details of starting an LLC and a corporation in Florida, and the advantages and disadvantages of both structures.
After determining which business structure is best suited for you, you can hire Active Filings to take care of the incorporation process for your small business. We’ll streamline the process and make it painless, and know you’ll understand quickly why Active Filings is America’s most reliable business incorporation service.
LLCs vs. Corporations
Regardless of which state you start your business in, you can typically base your decision off the following factors:
Expect a high level of maintenance if you plan to maintain a corporation. Corporations are strict, and have legal obligations on duties like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. On the flip side, expect only a minimal amount of maintenance in maintaining an LLC. LLCs require little paperwork, have flexibility in decisions, and low annual upkeep. An LLC will be the best choice if you have a small to medium-sized business and will need a low amount of maintenance.
LLC taxes require less time and paperwork by design, since its not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. For higher income LLCs, the tax rate is usually lower than a corporation. Corporations default to a tax structure called a C corporation, but can potentially elect an S corporation tax status if it’s more beneficial. The C corporation is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, have tax deductibles such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
Investors are far more likely to invest their funds into a corporation. Investors are more comfortable handing money over to a familiar and reputable business structure like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. In contrast, investors can own a percentage of an LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you are serious about gaining investors.
Prestigious name ending
Having “LLC” or “Inc” on the end of your business name will give it a level of prestige. These endings convey permanence and encourage trust from potential investors or clients. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and their prestige can only continue to grow.
FL LLCs vs. FL Corporations
After walking through the main characteristics between LLCs and corporations, next is to get into specifics of why a Florida LLC or Florida corporation would be better for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details should be taken into consideration when choosing your business entity. The information in this section will provide these specifics for the Florida LLC and the Florida corporation.
Florida Corporate Net Income Tax and Unique Exemption
Florida has two good selling points for corporations in regards to taxes: a fairly low corporate tax rate compared to other states, and the first $50,000 of your corporation’s income being exempt from the corporate income tax.The Florida corporate income tax is a flat 4.458% for taxable years beginning currently through December 31, 2021 (afterwards it is 5.5%) and is imposed on all corporations doing business, earning income, or existing in Florida. The state imposes an alternative minimum tax (AMT) of 3.3% as well, and the greater of these two taxes is the amount owed to the state.
No Franchise or Privilege Tax in Florida
Besides an annual report tax, a unique advantage to forming a corporation or LLC in Florida is the absence of a common franchise or privilege tax imposed on your business.
Florida Personal Income Taxes
Unlike most states, Florida does not impose a personal income tax. If you are starting an LLC, a huge perk would be that neither your business income or net worth will be taxed by the state.
Single Member LLCs Vulnerability
In 2011, multi-member LLCs had their asset protection from creditors strengthened, but single member LLCs went in the other direction. Creditors have the powerful remedy of obtaining a court order to have a single member LLC’s interest sold at a foreclosure sale. The purchaser becomes the new sole owner, and can dissolve or sell the LLC and all of its assets.
Florida Multi-member LLC Asset Protection Greater Than Corporation
A charging order is the “sole and exclusive remedy” (§605.0503.3) that a creditor can push against a debtor’s interest in an LLC. The worst thing a charging order can do to a Florida LLC is place a lien (a claim against funds or assets) against an LLC so they can’t make a distribution from the LLC to the owner without first paying the creditor, which can be pretty easily worked around. Charging orders require a creditor to submit an application to the court, and are fairly easy to obtain. For corporations, a creditor has many options, including taking the corporate stock certificates, challenging the board or directors, and decree periodic accounting records. With these additional remedies available to a creditor, a multi-member LLC has become a better method of asset protection than a corporation.
Florida LLC or Florida Corporation? Final Answer.
Forming either an LLC or corporation for your business comes down to considering the size of your business, level of maintenance you can handle, priority of investors, and the most sensible tax structure for the future of your business.
The Florida LLC is the all-around simple solution for small to medium-sized businesses. LLCs in Florida are less expensive and time-intensive to form and maintain than corporations, and provide easy management, flexibility and liability protection. Florida LLCs stay true to design in their low maintenance and simple tax structure. If investors are not one of your top priorities, and you’re looking for awesome liability protection for your business, form a multi-member LLC.
The Florida corporation is your best bet if your business will be growing substantially and investors will be key for that growth, and you have the means for the amount of paperwork required. A Florida corporation remains true to character in its extra paperwork, steps to start and maintain, and complex yet beneficial tax structure.
How to Incorporate in Florida
Forming a corporation in Florida, also known as incorporating, is accomplished by filing the Articles of Incorporation with the Florida Department of State. You can file the Articles of Incorporation online at the Division of Corporations website, or by postal mail.
There is a $70 filing fee to file your Articles of Incorporation ($35 for the actual filing, $35 for the registered agent designation fee). Expedited services are not offered, and the filing time is 11 days.
To complete your Florida Articles of Incorporation, you need to include the following information:
Your Florida corporation name must include the word “corporation”, “company”, or “incorporated”, or the abbreviations “Corp.”, “Inc.”, or “Co.”, with or without a period at the end of the abbreviations.
Your corporation’s name must be distinguishable from the names of other business entities already on file with the Florida Department of State. Names may be checked for availability by searching the Florida Division of Corporations record search engine.
How to Start an LLC in Florida
Forming an LLC in Florida can be achieved by filing the Articles of Organization with the Florida Department of State. You can file the Articles of Organization online at the Division of Corporations website, or by postal mail.
There is a $125 filing fee to file your Articles of Organization, including designation of registered agent. Expedited services are not offered, and the filing time is 11 days.
When filling out your Articles of Organization either online or on a paper form, you will need your Florida registered agent to sign as well. Your registered agent will need to type their name in the signature block on the online form, or sign the paper form.
To complete the Florida Articles of Organization, you must include the following information:
Your Florida LLC’s name must use the words “Limited Liability Company”, or the abbreviation “L.L.C.”, or “LLC.”
Your LLC name can’t already be in use, and can’t include words that could confuse your business with a government agency. Restricted words, such as bank or university, may require additional paperwork to be accepted.
Florida Annual Report Requirements
To maintain good standing each year for your LLC or corporation in Florida, you will need to complete a couple maintenance tasks with the state.
- File your annual report
- File your Florida business taxes
In the next section, we’ve listed the instructions and resources you’ll need to help you accomplish all your annual reporting maintenance.
What is a Florida annual report?
A Florida annual report is a form filed with the Florida Department of State Division of Corporations and is meant to update or confirm the records for your business, such as registered agent and owner/director names, and lets your business maintain an active status.
How do I file an annual report in Florida?
Corporations and LLCs must file their annual reports online at the Florida Department of State Division of Corporation’s website.
How much does it cost to file an annual report in Florida?
The cost to file an annual report in Florida is $150 for domestic corporations, and $138.75 for LLCs.
When are Florida annual reports due?
Annual reports for both LLCs and corporations are due by May 1st each year in order to maintain an active status with the state. The late fee is $400 for both business entities.
Florida Business Taxes
While Florida’s business taxes are easier than many states, the details can still get tricky. For corporations, the state imposes a corporate income tax. For LLCs, the state doesn’t impose any franchise or entity tax, and there is no personal net income tax.
The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.
Take a look at our Florida Business Tax FAQ below:
What’s the Florida corporation income tax?
Florida’s corporate income tax is a flat tax imposed on all corporations doing business, earning income, or existing in Florida.
The first $50,000 of your corporation’s income is exempt, and then Florida’s corporate income tax rate is 4.458% for taxable years beginning between January 1, 2019 and December 31, 2021 (afterwards it will be 5.5%).
What tax form does a Florida corporation need to file?
A Florida C corporation will need to file Form F-1120, even if no tax is due.
How can I file the Florida corporate income tax?
A corporation can file their Florida corporate income taxes electronically or by paper form return.
If a Florida corporation paid $20,000 or more in corporate income tax during the prior state fiscal year or is already required to file federal income tax returns electronically, then the corporation will need to file their Florida corporate income tax electronically.
What tax forms does a Florida LLC need to file?
Your Florida LLC will need to file different forms depending on how it is classified with the IRS:
- LLCs classified as partnerships will need to file Form F-1065, which includes Schedule K-1 you will need to submit alongside.
- LLCs classified as a sole proprietorship will need to file a F-1040, which includes Schedule C you will need to submit alongside.
When are my business tax returns due?
The Florida corporate income tax return is due on or before the 15th day of the 4th month following the close of the taxable year, or April 15th for most corporations.
Florida LLCs classified as partnerships will need to submit their tax returns on or before the 15th day of the 3rd month following the close of the taxable year, or March 15 th for most LLCs under this classification.
Florida LLCs classified as sole proprietorships will need to submit their tax returns on or before the 15th day of the 4th month following the close of the taxable year, or April 15th for most LLCs under this classification.