Incorporation in Florida “S” Corporation
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What is a Corporation?
There are two types of Corporations, “C” Corporation and “S” Corporation. These corporate business entities have much in common and few (but significant) differences.
A Corporation in general is a legal entity that for business purposes is often considered a “Separate Living Person” entirely separate from the owners. A corporation can own and buy assets, enter into contracts, incur debts, be taxed, and be sued, all in its own name, separately from the owners and operators.
Owners of a corporation are known as shareholders. Shareholders are liable only to the extent of their investment in the Corporation. Shareholders will not be held personally liable for any debts or responsibilities of the business if they follow corporate formalities, and avoid wrongdoing. This is known as “Limited Liability.” A shareholder’s liability is limited only to his investment in the corporation.
The Shareholders of a corporation are the owners of the company. They vote to elect a board of directors who oversee the overarching business affairs and decision making. This board of directors elects officers such as a President, Vice-Presidents, etc. These officers manage the day-to-day operations of the business.
If this sounds too complex for small business, think again. Many small businesses make great use of the corporation’s ability to limit liability and issue shares.
The big difference between a “C” Corporation and an “S” Corporation.
A major factor that defines Corporations is how the corporation is taxed. Because a Corporation is a separate legal entity, they are subject to corporate taxes at the end of each fiscal year. When the owner takes profit as a shareholder, taxes are paid on that dividend. This is known as “double taxation.” This means that the Corporation is taxed at the corporate level and then again at the individual level on all dividends paid out.
However, this is a limitation that applies only to a “C” corporation.
The “S” Corporation is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S-Corporation. This creates a “Pass Through Entity.” Taxes are paid only on the personal level, on your personal tax return.
Both “C” and “S” corporations offer shareholders limited liability, both have the same business structure with shareholders, a board of directors, and officers, and both may act as their own legal entity entirely apart from their owners. The difference hinges primarily on taxes, and a limitation of 35 or less shareholders to claim “S” corporation status.
Therefore, an “S” corporation may offer your business the best of both worlds: personal limited liability protection along with the tax benefits of an LLC.
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A critical step in launching your business is choosing the right business structure.
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By carefully choosing the right business structure, you can limit your personal liability, take advantage of tax opportunities, and rest easy knowing that your company has set forth clear instructions on acceptable and efficient operation.
Our Florida business attorneys can help you choose the right business entity by listening to your concerns. We will also raise necessary considerations that you may not have considered. Most importantly, our Florida business lawyers will relieve the burden of organizing, drafting, and filing the proper documents with the state.