Choosing the type of business entity you operate is one of the most important decisions you make when you first decide to start your own business. Each type of business entity has pros and cons as it relates to complexity of requirements, ownership structure, decision making authority, taxes, and liability. The type of business entity you choose should depend on the business entity’s intended purpose.
The charts[1] below highlight the various structure, liability and management differences among sole proprietorships, C-corporations, S-corporations, limited liability companies, general partnerships, limited liability partnerships, limited partnerships and limited liability partnerships in Florida – specifically focusing on ownership requirements, formation, document and filing fees, liability for business obligations and management and governing authority.
It is important to keep in mind that there are many more areas in which these business entities vary (for example, form of equity and restrictions, governing documents, fiduciary duties, employee incentive considerations, capital raising consideration, and distributions) and that the chart below provides information based on the default rules provided by Florida’s Revised Limited Liability Company Act which, in many cases, may be eliminated or varied during the drafting of a Limited Liability Company’s operating agreement. Default rules only apply if the applicable subject is not covered in the limited liability companies operating agreement or articles of organization. Thus, the actual governance structure of your Limited Liability Comp-any may be different from the default rules depending on how you and your attorney decide to draft the operating agreement. However, when drafting your operating agreement, it is imperative that your attorney confirm that the particular rule you seek to alter is not one of the sixteen (16) mandatory non-waivable provisions of the Florida Revised Limited Liability Company Act.
For more information and a brief summary on the sixteen (16) non-waivable provisions of the Florida Revised Limited Liability Company Act, see our article on Non-Waivable Corporate Rules.
Sole Proprietorship
Ownership Requirement | One individual |
Formation, Document and Filing Fees | No formation document is required. A sole proprietorship using any name other than the real name of the owner must register a fictitious name, renew that name every five years (registration expires on December 31 of the fifth year) with the DOC and advertise the intention to register the fictitious name in the county where the principal place of business is located. The filing fee for the registration and each renewal is $50. Each county may have license requirements for certain professions and business activities. |
Liability for Business Obligations | No limited liability. The owner is personally liable for business obligations. |
Management and Governing Authority | All management duties belong to the sole proprietor. |
C-Corporation
Ownership Requirement | One or more shareholders, but the corporation has perpetual duration and continues to exist even if no shares are outstanding. Generally no restrictions on the types of owners. Shareholders of professional corporations (including CPA’s, physicians and attorneys) must be licensed and authorized to render the professional services provided by the business entity. |
Formation, Document and Filing Fees | Articles of incorporation filed with the Department of Corporations (“DOC”). Filing fees: $35 for the articles of incorporation. An additional $35 fee is required for the designation and acceptance of the registered agent for the corporation. Another $35 fee is required to change the registered agent or registered office address if not included on the annual report. There is also a $61.25 annual report fee and $88.75 supplemental corporate fee due when the C-corporation files the annual report each year. |
Liability for Business Obligations | Shareholder’s liability is limited to the obligation to pay the corporation the full consideration for which that shareholder’s shares were issued. |
Management and Governing Authority | A C-corporation’s powers are exercised by or under the authority, and its business and affairs are managed under the direction, of a board of directors. However, the shareholders in a corporation with 100 or fewer shareholders may eliminate or restrict the board of directors in the articles of incorporation or a shareholders’ agreement. The shareholders can also limit the board of directors’ right to amend the bylaws. Unless the articles of incorporation, bylaws or a shareholders’ agreement provide otherwise, each director has one vote. Unless the Florida Business Corporation Act (“FBCA”), the articles of incorporation or a shareholders’ agreement provides otherwise, each share is entitled to one vote on each matter submitted to the shareholders. Shareholders approve actions by the affirmative vote of a plurality of the votes cast within each voting group if a quorum of that voting group is present at a meeting or a majority of all votes entitled to be cast within each voting group for action by written consent without a meeting. Unless the articles of incorporation or a bylaw of a corporation having shares listed on a national securities exchange at the time of adoption provide otherwise, shareholders elect directors by a plurality of the votes cast by all shares entitled to vote in the election at a meeting where a quorum is present, with voting by voting groups, cumulative voting or both if authorized by the articles of incorporation. Corporations must have the officers described in the bylaws or appointed by the board of directors in accordance with the bylaws, including at least one officer responsible for preparing minutes of shareholders’ and directors’ meetings and authenticating records. Directors may designate some authority to committees, unless the articles of incorporation or bylaws provide otherwise. Unless the articles of incorporation or action of the board of directors provides for a greater voting requirement for shareholders or voting groups, most amendments to the articles of incorporation and fundamental transactions (such as a merger, share exchange, conversion, disposition of all or substantially all of the corporation’s property other than in the regular course of business and voluntary dissolution) generally require approval by the board of directors and a majority of the votes entitled to be cast on the action by each voting group and a plurality of the votes cast within each other voting group entitled to vote on the action. |
S-Corporation
Ownership Requirement | One to 100 shareholders (family members count as one shareholder), but the corporation has perpetual duration and continues to exist even if no shares are outstanding. With limited exceptions, only US citizens or legal resident aliens can be shareholders. Estates and certain trusts and exempt organizations can also be shareholders. An S-corporation can be a “qualified subchapter S subsidiary” of another corporation or LLC that elects S-corporation status. Only eligible US entities can make an S-corporation election (generally a US C-corporation or other US business entity eligible to elect C-corporation tax status). |
Formation, Document and Filing Fees | Articles of incorporation filed with the DOC. Filing fees: $35 for the articles of incorporation. An additional $35 fee is required for the designation and acceptance of the registered agent for the corporation. Another $35 fee is required to change the registered agent or registered office address if not included on the annual report. There is also a $61.25 annual report fee and $88.75 supplemental corporate fee due when the S-corporation files the annual report each year. An eligible US entity must make a timely S-corporation election on IRS Form 2553, no more than two months and 15 days after the beginning of the tax year the election is to take effect. |
Liability for Business Obligations | Shareholder’s liability is limited to the obligation to pay the corporation the full consideration for which that shareholder’s shares were issued. |
Management and Governing Authority | An S-corporation’s powers are exercised by or under the authority, and its business and affairs are managed under the direction, of a board of directors. However, the shareholders may eliminate or restrict the board of directors by provisions of the articles of incorporation or shareholders’ agreement. The shareholders can also limit the board of directors’ right to amend the bylaws. Unless the articles of incorporation, bylaws or a shareholders’ agreement provide otherwise, each director has one vote. Unless the FBCA, the articles of incorporation or a shareholders’ agreement provides otherwise, each share is entitled to one vote on each matter submitted to the shareholders. Shareholders approve actions by the affirmative vote of a plurality of the votes cast within each voting group if a quorum of that voting group is present at a meeting or a majority of all votes entitled to be cast within each voting group for action by written consent without a meeting. Unless the articles of incorporation or a bylaw of a corporation having shares listed on a national securities exchange at the time of adoption provide otherwise, shareholders elect directors by a plurality of the votes cast by all shares entitled to vote in the election at a meeting where a quorum is present, with voting by voting groups, cumulative voting or both if authorized by the articles of incorporation. Corporations must have the officers described in the bylaws or appointed by the board of directors in accordance with the bylaws, including at least one officer responsible for preparing minutes of shareholders’ and directors’ meetings and authenticating records. Directors may designate some authority to committees, unless the articles of incorporation or bylaws provide otherwise. Unless the articles of incorporation or action of the board of directors provides for a greater voting requirement for shareholders or voting groups, most amendments to the articles of incorporation and fundamental transactions (such as a merger, share exchange, conversion, disposition of all or substantially all of the corporation’s property other than in the regular course of business and voluntary dissolution) generally require approval by the board of directors and a majority of the votes entitled to be cast on the action by each voting group and a plurality of the votes cast within each other voting group entitled to vote on the action. |
Limited Liability Company (LLC)
Ownership Requirement | One or more members. Two or more members required if LLC wants to be taxed as a partnership An LLC cannot be formed until it has at least one member. An LLC that has no members for 90 days is dissolved unless the transferees of the former members consent to admit at least one member and that person becomes a member Generally no restrictions on the types of owners. The Florida Revised Limited Liability Company Act (“RLLCA”) even permits the admission of members who do not own a transferable interest and does not require members to make a capital contribution (for example, a lender who has no economic interest in a Florida LLC can become its member). However, the other members by unanimous consent can expel a corporate member (after 90 days’ notice) or an unincorporated member (without notice) if the member has been dissolved or certain specified dissolution events affecting the member have occurred. Members of professional LLCs (including certified public accountants, physicians and attorneys) must be duly licensed or otherwise legally authorized to render the professional services provided by the business entity. |
Formation, Document and Filing Fees | Articles of organization become effective when the LLC has at least one member. Filing fees: $100 for the articles of organization. An additional $25 fee is required for designation or change of the registered agent. There is also a $50 annual report fee and $88.75 supplemental corporate fee due when the LLC files the annual report each year. |
Liability for Business Obligations | Members are not liable for the debts, obligations and other liabilities of the LLC solely because they are, or are acting as, a member. |
Management and Governing Authority | Managed by members directly unless the articles of organization or operating agreement provides for the LLC to be manager-managed. A manager-managed LLC may be managed by a member manager, a non-member manager or a board of managers. In a manager-managed LLC, managers have equal rights in the management and conduct of the LLC’s ordinary course of business activities and affairs. However, even in a manager-managed LLC, the members owning a majority-in-interest of the LLC must approve any of the LLC’s non-ordinary course activities and affairs. Members of a member-managed LLC have the right to participate in the management of the LLC with each member’s vote determined by that member’s percentage interest in the LLC’s profits. Members owning a majority-in-interest of the LLC must approve all of the LLC’s activities and affairs. A member of a member-managed LLC, and the manager of a manager-managed LLC, can delegate any of its power to manage and control the LLC to officers or other persons. |
General Partnership (GP) and Limited Liability Partnership (LLP)
Ownership Requirement | At least two general partners. No restrictions on the types of owners. Partners in professional partnerships (including certified public accountants, physicians and attorneys) must be licensed or authorized to render the professional services provided by the business entity. A general partnership may become an LLP by filing a statement of qualification. |
Formation, Document and Filing Fees | Florida allows for but does not require the filing of a partnership registration statement with the DOC to form a partnership. Including the partnership name in that statement does not depend on having no conflicts with other names on file with the DOC. It is for public notice only and does not create a presumption of ownership of the name used beyond that acquired under common law. However, a partnership registration statement is a prerequisite to other actions such as merger or conversion. Association of two or more persons as co-owners to carry on a business for profit forms a partnership, even if not intended. Filing fees: No fee is required since the filing of a partnership registration statement is optional; $50 if filing a partnership registration statement. LLP requires a statement of qualification filed with the DOC and with a filing fee of $25. There is a $25 annual report fee for an LLP and an $88.75 supplemental corporate fee due when it files the annual report each year. |
Liability for Business Obligations | All partners are generally jointly and severally liable for all partnership obligations and for acts or omissions of any partner acting in the ordinary course of business or with partnership authority, unless the partnership is an LLP. Any obligation incurred while a partnership is an LLP, whether arising in contract, tort or otherwise, is solely the obligation of the partnership and not the partners. |
Management and Governing Authority | Each partner has an equal right to manage and conduct partnership business |
Limited Partnership (LP) and Limited Liability Limited Partnership (LLLP)
Ownership Requirement | Two classes of partners, with one or more general partners and one or more limited partners. A person may be both a general and limited partner and have the rights, powers, duties and obligations of each capacity No restrictions on the types of owners. Partners in professional LPs (including certified public accountants, physicians and attorneys) must be licensed or authorized to render the professional services provided by the business entity The certificate of formation must state whether a limited partnership is an LLLP. |
Formation, Document and Filing Fees | Formation document is a certificate of limited partnership filed with the DOC. Filing fees: $965 for the original certificate of limited partnership. A $35 fee is required for the designation of a registered agent. There is a $35 fee for a change of registered agent or registered office address. There is also a $411.25 annual report and an $88.75 supplemental corporate fee due when it files the annual report each year. |
Liability for Business Obligations | All general partners are typically jointly and severally liable for all LP obligations. A limited partner is generally not liable for the obligations of the LP, whether arising in contract, tort or otherwise, solely by reason of being a limited partner, even if the limited partner participates in the management and control of the LP. Any obligation incurred while an LP is an LLLP, whether arising in contract, tort or otherwise, is solely the obligation of the LP and not the general or limited partners. |
Management and Governing Authority | Each general partner has an equal right to manage and conduct LP business. Some actions require the approval of all general partners. Limited partners have no right or power to act for or bind the company. However, unless the LP agreement provides otherwise, limited partners have the right to approve all actions requiring the approval of general partners except for expulsion of a limited partner, a plan of conversion or merger, or a disposition of all or substantially all of the LP’s property, with or without goodwill, other than in the usual and regular course of the LP’s business. Because § 620.1406, Fla. Stat. Ann. is ambiguous and appears to reflect a material scrivener’s error, counsel should ensure that the LP agreement clearly sets out the actions that require approval of the limited partners. |
[1] All information regarding filing fees is as of July 1, 2016.
