Starting a business in Florida: LLC or corporation, and what to file

You have a business idea, maybe your first customers, and now you need to make it official. Most new Florida businesses form either a limited liability company (LLC) or a corporation. The filing itself is short, but the choices you make at the start shape how the business is run, taxed and protected. Here is a general guide.

LLC or corporation, in plain terms

• Liability protection. Both are meant to keep the business's debts separate from your personal assets. Under Florida's LLC law, a member or manager is not personally liable for the company's debts just because they are a member or manager. That protection has limits, and your own conduct, such as a personal guarantee, can still put you on the hook.
• Management. An LLC is run by its members unless its articles or operating agreement say it is run by managers. A corporation has a board of directors, elected by the shareholders, and officers who handle day-to-day business. An LLC is usually more flexible. A corporation has a more set structure, which some investors expect.
• Taxes. LLCs and corporations can be taxed in different ways, and some choices are made with the IRS after you form. This is a question for your CPA or tax advisor before you file, not after.

Filing with the state on Sunbiz

Florida businesses are formed by filing with the Florida Division of Corporations, usually online at Sunbiz. An LLC files articles of organization under chapter 605 of the Florida Statutes. A corporation files articles of incorporation under chapter 607.

• LLC articles must include the company's name, its principal office street and mailing addresses, and the registered agent's name, Florida street address and signed acceptance.
• Corporation articles must include the name, the principal office address, the number of shares the corporation may issue, the registered agent and office with the agent's acceptance, and the name and address of each incorporator.

The state charges a filing fee. As of this writing, the Division lists $125 for a new LLC ($100 for the articles plus $25 for the registered agent designation) and $70 for a new corporation ($35 plus $35). Optional extras, like a certified copy, cost more. Check Sunbiz for current fees before you file.

The registered agent

Every Florida LLC and corporation must name a registered agent and keep a registered office in Florida, and keep them in place for as long as the business exists. The agent can be a Florida resident or an authorized business entity, and its business address must be the registered office. The registered agent is where lawsuits and official notices can be delivered. If no one is there to receive them, you may not find out about a lawsuit until it is too late. Failing to keep a registered agent is also a ground for the state to dissolve the business.

Operating agreement or bylaws: put it in writing

An LLC's operating agreement sets out who owns what, who makes decisions, how money comes in and goes out, and what happens if an owner leaves, dies or wants out. A corporation's bylaws do a similar job for directors, officers and shareholders. Neither is filed with the state, so they are easy to skip.

Don't skip it, even if you are the only owner. Florida law treats an operating agreement as possibly oral or implied, which means that without a written one, people may later argue about what you "agreed." A written agreement also shows banks, partners and courts that the business is separate from you, and it plans for what happens if you become unable to run it.

The EIN

An employer identification number (EIN) is the business's federal tax ID. The IRS says one is generally needed to hire employees or to run a corporation or partnership, among other things. The IRS also says to form your LLC or corporation with the state first. Apply directly with the IRS, and be careful with websites that charge to get one for you. Your CPA can tell you whether and when you need one.

The annual report: don't miss May 1

Every Florida LLC and corporation must file an annual report with the Division of Corporations each year between January 1 and May 1, starting the year after it is formed. The report updates the state's records, such as addresses, the registered agent and the people in charge.

• The fee. The Division lists $138.75 for an LLC and $150 for a for-profit corporation.
• The late fee. If an LLC or for-profit corporation files after May 1, the Division adds a $400 late fee.
• Administrative dissolution. If the report isn't filed by the third Friday in September, the state administratively dissolves the business on the fourth Friday in September.

A dissolved business can usually be reinstated, but only by filing an application and paying the reinstatement fee and the past-due annual report fees. A business that hasn't filed its annual report also can't bring or defend a lawsuit in Florida court until it catches up.

Doing business under another name

If your LLC or corporation will do business under a name that is different from its registered legal name, such as "Sunshine Pressure Washing" instead of "Smith Ventures, LLC," Florida's fictitious name law, section 865.09, generally requires you to register that name with the Division of Corporations before you use it. The filing includes a statement that the name was advertised in a newspaper in the county where the business is located. Registration lasts about five years and must be renewed.

Two things surprise people. First, registering a fictitious name does not give you ownership of the name or keep others from using it. Second, a business that didn't register can't bring a lawsuit until it does, and it can be ordered to pay the other side's attorney's fees and costs.

Common mistakes

• Picking an LLC or corporation without first talking to a CPA about taxes.
• Skipping the operating agreement or bylaws, especially with a partner or family member.
• Listing a registered agent who moves, quits or never checks the mail.
• Missing the May 1 annual report deadline, or letting the business get dissolved.
• Using a business name that isn't the registered name, without a fictitious name filing.
• Signing contracts or leases in your own name instead of the business's name.
• Mixing personal and business money, which makes records harder to keep and invites disputes about whether the business is truly separate.

A business that is set up right from day one is easier to run, easier to bring partners or lenders into and easier to sell or close later. Fixing a sloppy setup after a dispute starts is usually harder.

This article is general information about forming a business under Florida law, not legal advice. Fees, forms and rules can change, so check the Division of Corporations before you file, and talk to a CPA about taxes. Every business is different, and reading this doesn't create an attorney-client relationship.