Q: Among Limited Liability Companies, S Corporations, C Corporations, partnerships or sole proprietorships, which is the most popular type of business entity and why? I need to act quickly, as I have been offered a subcontract opportunity to do carpentry but was informed by the general contracting firm that I must be an established business first.
A: This is a common question these days, considering all of the cranes towering over Central Florida, buildings and houses cropping up everywhere and new highways crossing over every horizon to manage Florida’s tourism and population growth. The demand for new business startups in Florida has grown substantially during 2016 and 2017, and the introduction of new tax reform is expected to increase this demand even more exponentially during 2018 and beyond. Consistently ranked one of the best states for new business startup activity, Florida hosts the second highest density of business startups in the U.S. and has an excellent business tax climate as well as no individual income tax. Furthermore, Florida is the 3rd most populated state, has the 18th largest economy in the world and is the country’s 2nd largest exporter.
It seems that the most popular trend today for creating a new startup company is an LLC. The LLC allows individuals to conduct business efficiently and easily by combining the best features of corporations, partnerships and sole proprietorships while eliminating many of the problems and complexities associated with them. So, what makes LLCs so popular?
1. A member-managed LLC, run by a single member, is easy for tax purposes. It can be taxed as a disregarded entity, which means taxes are paid as if you are a sole proprietor. A disregarded entity is a type of business that is separate from the owner for liability purposes, but it is the same as the owner for tax purposes. It pays taxes through the owner’s personal income tax return.
2. Similar to a corporation, an LLC generally protects its members from personal liability for business debt. For example, if you haven’t personally guaranteed a debt, such as for an office lease, only the assets of the LLC will be liable to pay the business debts rather than the individual members. However it will not protect or shield a member from their own personal malpractice such as fraud, misuse or misappropriation of company assets.
3. An LLC is the easiest type of business entity to maintain. It doesn’t require the same formality that corporations require, such as conducting annual meetings and maintaining annual minutes. Though not technically required, it’s good practice to maintain minutes, even if they are rather informal. Maintaining minutes demonstrates that you recognize the business, by law, as a separate “person” from you.
Before you decide to set up a new business, consult with a business law attorney and discuss the type of business entity that is right for you.