Quick and concise backgrounder for start ups- Start Up Handbook series part 1 "Making it Legal"
This is part one of a ten part series for start ups and new entrepreneurs.
Establishing a Legal Entity - Understanding the Advantages and Disadvantages of the various types of Legal Entities
CHOOSING THE RIGHT LEGAL ENTITY
I. Legal Structures:
- Sole Proprietorship: In this form of doing business, one person (you) owns and operates the business. On the plus side, your business earnings are taxed just once, and you alone are in charge of all business decisions. On the downside, sole proprietors are personally liable for any claims against their businesses, and often have more trouble getting financing. Many businesses start as sole proprietorships, then switch to more complex structures.
- Partnerships: In a general partnership, both partners manage the business and are responsible for its debts. In a limited partnership, certain (limited) partners are investors but do not manage the business. One advantage of partnerships:The partnership doesn't pay tax; partners report profits or losses on their personal tax returns. The disadvantage: Partners are personally liable for any debts of their business.
- "C" Corporation (Conventional): Incorporating protects you from liability for the company's debts or claims against it. A corporation can sell stock, enabling you to raise money. However, corporations are strictly regulated and are taxed twice- the corporation pays income tax, and shareholders pay taxes on any dividends.
- "S" Corporation (Subchapter): An S corporation protects owners against liability and provides more tax benefits than a corporation. The corporation doesn't pay federal income taxes; profits and losses are reported on shareholders' individual tax returns. But complying with regulations can be costly and time-consuming, and you are limited to a set amount of shareholders, which may be restrictive if you're seeking to raise lots of capital.
- Limited Liability Company (LLC): An LLC offers liability protection like a corporation, but without double taxation because earnings and losses are reported on the owners' personal taxes. There is no limit on the number of members. Owner or members in a multiple-member LLC should have a written membership agreement reviewed by an attorney.
II. Compliance issues - Licensing
Permits and Licenses (Information available for each municipality)
- Zoning - in compliance with zoning in municipality
- Business Tax Receipt (Formerly Occupational License) -Required for County and City in Miami Dade. Others cities and counties may have different licensing requirements.)
- State and Professional Licenses- for various businesses (Florida Department of Business & Professional Licenses)
- Beverage License- wine and liquor license- various types (wine and beer, full liquor licenses, food service with service of alcohol.)
- Health Permits and Licenses- for public lodging and food service
- Retail Establishment Licenses- for goods and services sold on installment contract or revolving charges
- Environmental Regulations (Florida Department of Environmental Protections)
- Minority Business Status
- Government Contracting Status
Note: Make certain your accountant keeps records and file returns in accordance with State and Federal Requirements. This includes filing your personal tax returns. Your accountant should be aware of requirements for new hires, (either full or part time), minimum wage requirements, workers' compensation, and child labor laws.
Remember: You are responsible for all legal requirements. Your accountant and your lawyer provide information and guidance according to government requirements, but you must review and sign all documents.
Next- The importance of Intellectual Properties -Trademarks , Patents, Copyrights
About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has been facilitating workshops under the auspices of Miami Bayside Foundation for the past 3 years. She commenced her career as a real estate investment banker in New York and Miami.She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.