Creating an S corporation in Florida is not easy, so working with experienced business formation lawyers is vital. In this article, you will learn what you need to know about creating an S corporation in Florida and, most importantly, why you need help to do it right.
Creating an S Corporation in Florida – The First Step: Making the Right Choice
Before creating a corporation, you need to decide which type of corporation you want and, most importantly, which type you need, depending on your unique circumstances and goals. There are two types of corporations to choose from – S corporations and C corporations.
When most people think about corporations, they think about C corporations. In other words, most people link the word “corporation” to a company that issues dividends, can have several different classes of shares, and can have many shareholders. S corporations are similar, as they offer most of the same benefits; however, in some ways, they are more similar to partnerships.
In simple terms, an S corporation is a type of corporation that meets specific IRS requirements. Meeting these requirements allows the corporation to pass income directly to its shareholders without being subject to corporate income tax.
Is creating an S corporation in Florida the right move for you? Read on to find out.
The Advantages and Disadvantages of Creating an S Corporation
By far, the most significant advantage of S corporations is that they are “pass-through” entities. Thus, essentially, the income an S corporation generates goes directly to its shareholders, as there is no corporate income tax. In other words, the shareholders of an S corporation report their income on their individual tax returns. Thus, the revenue generated by the company is not subject to double taxation, unlike C corporations. This can be a considerable advantage, especially for small businesses, where every cent counts.
However, creating an S corporation is not always the right move. Several disadvantages go along with creating an S corporation in Florida. For starters, the distributions an S corporation makes are usually subject to much heavier scrutiny by the IRS. Why? Because some S corporations make distributions as a way to avoid payroll taxes. For this reason, S corporations are usually at a greater risk of being audited.
Another big disadvantage of creating an S corporation in Florida is that there are usually more formation requirements when compared with partnerships or limited liability companies. To create an S corporation, you must file “Articles of Incorporation,” and several startup costs are involved. Although the benefits of creating an S corporation may easily outweigh these costs, they can be substantial, so keep that in mind.
Important S Corporation Facts You Need to Know
In essence, an S corporation is a corporation that has chosen to pay taxes as if it were a partnership. This choice, however, has a price. When you choose to pay taxes as a partnership, you automatically limit your company in several ways. For instance, if you decide to create an S corporation, you will not be allowed to have more than 100 shareholders, and you can only offer one class of shares.
In addition, only domestic corporations can choose S-corporation taxation, and only specific organizations can be shareholders, in addition to individuals. Make sure to consider all of this before deciding to create an S corporation.
Are You in the Process of Starting a Business in Florida? I Can Help You
When most people hear the word “lawyer,” they think of courtrooms, breaches of contract, legal problems, disputes, and all sorts of bad things. In other words, most people view lawyers as problem solvers – people you hire when something is wrong. This is very unfortunate because lawyers are so much more than that.
As a business person, you need to understand the importance of working with experienced lawyers not just when you get into legal trouble but always from the beginning. In addition to helping you resolve legal disputes and representing you in lawsuits, a lawyer can help you create your business, build your brand from the ground, and protect your company and your partners by preventing problems from happening.
If you are finally taking steps to start the business you have always dreamed of, I can help you do it the right way. Get in touch with me today by calling (305) 921-0440 or email me at Romy@jflawfirm.com to schedule a consultation.