In honor of American Business Women’s Day on September 22, our friend, Annie Breitinger of Blalock Walters, P.A., stopped by to provide some insight into what it takes to create a business. Taking the leap to create your own business might be intimidating… but it doesn’t have to be! We’re here to help the women or Manatee and Sarasota County be empowered to create their own empire.
If you’re not sure how to make that first step, you may be asking yourself a plethora of questions, like do I need a lawyer? A CPA? Business advisor? How much should I plan to spend? What is the timeframe for getting off the ground? Regularly I receive phone calls asking these questions, usually with a bit of trepidation and a general sense of being overwhelmed.
When I receive these calls, my first step is to assure clients that this is not general knowledge! You are not naïve for not knowing what professionals they need on their team or how much it is going to cost. Starting a business is a daunting task and often your first challenge is to determine what type of entity to form.
Defining your entity
If you are looking for personal liability protection, in Florida there are generally two options: Limited Liability Companies (LLCs) and Corporations. You also have the option of professional LLCs or Professional Associations if you are providing certain licensed activities such as legal or medical services.
LLCs and Corporations both provide protection against individual liability, provided you follow the corporate formalities (with some other exceptions such as individual bad acts, but that is a topic for a different article!). A major difference between entities types is taxation. Multi-member LLCs are taxed as a partnership by default, while corporations are taxed as C corps by default. Single member LLCs are taxed as a sole proprietor as a default. LLCs may proactively elect to be treated as an S corp or a C corp. Corporations may elect to be treated as an S corp, or remain as the default C corp. This taxation decision is usually best made with the advice of your CPA and will depend on a variety of factors such as the owners of the company, the intended business of the company, and projected income.
Forming your entity
Once you have determined your entity type and taxation election, it is time to determine who will have the authority to act on behalf of your legal entity. Corporations appoint directors and officers. Florida LLCs are a bit more complicated. Florida LLCs can be either member managed or manager managed. In member managed LLCs, all of the members have the power to govern the LLC. Manager managed LLCs appoint managers (who do not have to be members) to manage the LLC. The manager managed LLC option is good for an LLC with passive members who will not have the power to manage the LLC.
Generally, once you file your legal entity with the Secretary of State, you will have a confirmation back within 48 hours. You can file online, via fax, or mail. A lot of information regarding formation can be found at the Secretary of State’s website, Sunbiz.org.
After the legal entity is formed with the Florida Secretary of State the next step is to draft the governing documents. Corporations generally have both bylaws and a shareholders’ agreement. Bylaws set forth the procedural aspects of the corporation while the shareholders’ agreement addresses how the corporation is run. Information such as how decisions are made, how new shareholders are added, and what happens upon a shareholder death are included in a shareholders’ agreement. LLCs enter into operating agreements which address the same topics as a shareholders’ agreement.
Determining the cost
So now you know the lingo and the right questions to ask. How much is this going to cost? The Florida Secretary of State charges $125 to file an LLC and $70 to file a corporation. Law firms generally charge around $1,000 to file the legal entity, make any desired tax election, and obtain your entity’s tax ID number with the IRS. Generally, operating agreements and shareholders agreements are charged based on the complexity of the arrangement. For complex arrangements, be prepared to spend a couple thousand dollars in attorneys’ fees to ensure all parties are protected and your new company is set up to succeed.