What is an S Corp
There is no corporate entity called an S Corp. The S Corp is a tax election as compared to a C Corp or other choices like sole proprietor and partnership. It merely denotes how you want your business treated for tax purposes. The S Corp treatment passes the income of the business through the business onto the owner or owners. Thus it is referred to as a pass-thru entity, but it is not a legal entity like the corporation or LLC.
What are the legal entities in Florida I can choose for my business
There are three recognized business entities in Florida. They are the corporation, the limited liability company, and the partnership.
The corporation
The corporation is regulated by Chapter 607 and identified by the letters Inc. Historically, Chapter 607 of the Florida Statutes, also known as the Business Corporations Act, was modeled on New York and Delaware law. Florida's Corporate Act has evolved differently in some areas over time and is thus unique to our business climate here
A corporation or Inc. is governed by its board of directors, but owned by its shareholders. The officers manage the daily operations of the corporation. There are requirements under Florida law that must be respected in order to enjoy the liability protections that the corporation offers. For example, the board of directors must meet and document those meetings with minutes. Similarly, the shareholders must also meet at least once a year and document those meetings with minutes. The corporation should have but is not legally required to have bylaws and a shareholder agreement. If the business opts not to have these important governing documents then Chapter 607 applies to the business and it is stuck with the provisions contained therein. Business owners that fail to maintain the corporate formalities required by Florida's corporate law risk losing the protections afforded by those laws. Business owners who choose not to have their own corporate governance documents choose not to take advantage of the ability to tailor the law to their business for their benefit.
A corporation or Inc. is governed by its board of directors, but owned by its shareholders. The officers manage the daily operations of the corporation. There are requirements under Florida law that must be respected in order to enjoy the liability protections that the corporation offers. For example, the board of directors must meet and document those meetings with minutes. Similarly, the shareholders must also meet at least once a year and document those meetings with minutes. The corporation should have but is not legally required to have bylaws and a shareholder agreement. If the business opts not to have these important governing documents then Chapter 607 applies to the business and it is stuck with the provisions contained therein. Business owners that fail to maintain the corporate formalities required by Florida's corporate law risk losing the protections afforded by those laws. Business owners who choose not to have their own corporate governance documents choose not to take advantage of the ability to tailor the law to their business for their benefit.
The limited liability company
The limited liability company is governed by Chapter 605 of Florida Statutes and identified by LLC after the business name. It can be managed by its members or a manager or managers. The governing document that regulates an LLC is called its operating agreement. But without an operating agreement the company is deemed by Florida law to be member managed.
An advantage that the LLC has over the Inc. is that it affords the same liability protections with far less management. But like the Inc., LLC owners who choose not to have their own operating agreement elect to allow the company to be regulated by Chapter 605 and are stuck with the provisions contained therein that may not accommodate the unique needs of the business. One example is the valuation of a membership interest. Under the Revised LLC Act currently in place in Florida, the default value is fair value. It is not fair market value because there is no market for closely held company membership interests. Fair value is a somewhat subjective concept that is expensive to establish in a dispute like a corporate divorce as they are commonly called. LLC owners can modify this valuation to something that fits their needs through an operating agreement if they choose to have one.
An advantage that the LLC has over the Inc. is that it affords the same liability protections with far less management. But like the Inc., LLC owners who choose not to have their own operating agreement elect to allow the company to be regulated by Chapter 605 and are stuck with the provisions contained therein that may not accommodate the unique needs of the business. One example is the valuation of a membership interest. Under the Revised LLC Act currently in place in Florida, the default value is fair value. It is not fair market value because there is no market for closely held company membership interests. Fair value is a somewhat subjective concept that is expensive to establish in a dispute like a corporate divorce as they are commonly called. LLC owners can modify this valuation to something that fits their needs through an operating agreement if they choose to have one.
The partnership
Partnerships are addressed in Chapter 617 and can have several identifiers depending on what kind of partnership it is. Partnerships have largely fallen out of favor with the creation of the LLC. Partnerships were an alternative the corporation and Florida's Legislature attempted to accommodate an evolving business climate in the early 1990s with the Revised Uniform Limited Partnership Act that established various permutations of the partnership like the limited liability limited partnership. But these variants could not offer the liability protections of the Inc. and LLC or the ease of management offered by the LLC.
Partnerships are governed by a partnership agreement and depending on the type of partnership have specific requirements of they types of partners they must have. For example not all the partners can limit their liability. The greatest drawback to the partnership was that while it acted like an LLC it simply did not provide the liability protections of the LLC or corporation and thus exposed the partners to liability without providing much benefit.
Partnerships are governed by a partnership agreement and depending on the type of partnership have specific requirements of they types of partners they must have. For example not all the partners can limit their liability. The greatest drawback to the partnership was that while it acted like an LLC it simply did not provide the liability protections of the LLC or corporation and thus exposed the partners to liability without providing much benefit.
Which is the right entity for you
The LLC is now the most common entity used in Florida today because it is easy to manage and provides a good deal of protection for its owners. Which entity is best for your situation is really a discussion best had with your corporate attorney and business lawyers. That person can weigh your goals and intentions and recommend the best entity for your unique circumstances.
Written by expert business lawyer David Steinfeld
David Steinfeld is one of the few Board Certified business law experts in Florida. He has been licensed for over 25 years. He is AV-Preeminent rated, ranked as one of the Best Lawyers in America by U.S. News and World Report, and consistently named a Florida Super Lawyer and one of Florida’s Legal Elite. Dave has also received Martindale’s prestigious Judicial Edition Award for high reviews by Judges, its Platinum Client Champion Award and has a 10.0-Superb rating on AVVO as well as a 10.0 rating on Justia, lawyer reviews websites.
Check out business lawyer David Steinfeld online for helpful videos and articles on Florida business law, real estate disputes, and electronic discovery solutions for your business. This article is provided for informational purposes only.
Check out business lawyer David Steinfeld online for helpful videos and articles on Florida business law, real estate disputes, and electronic discovery solutions for your business. This article is provided for informational purposes only.
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