An important consideration closely associated with choice of entity determination is location. Before you start a company you must decide not only what type of business to form but also the best location for your business. Forming a business in Florida may not always be the best and most obvious choice. Even if you file in Florida, other states may require that you register to do business in their jurisdiction if you start transacting certain amount of business there. If you are licensed in a particular jurisdiction you may also be required to register before doing business in that state. As a general practice, the best place to incorporate is in the state where the company will conduct most of its business. That way you don’t have to deal with two states and can avoid the possibility of having to file an unnecessary state corporate/entity tax return. (You are likely to be subject to taxes in the state in which you are doing business.) If you are going to conduct business in multiple states it may be better to incorporate in a state like Delaware for example, and then qualify to transact business in other states. Keep in mind that different states have different requirements and regulations, which can have important repercussions on your business growth and future success. Consult with a business lawyer in central Florida before deciding where to establish your business.
There are number of factors that need to be examined before deciding in which state to form your business. These include among others the filing cost, yearly maintenance dues, minimum capital and one person requirements, asset and liability protection, third party and creditor financing, privacy disclosures, taxes, need for official presence in conducting business, flexibility in running the company and cross border alliances. Below is a chart compiled in 2014 that illustrates how limited liability companies and corporations are treated in some key states. There are a lot of exceptions that have not been highlighted and the chart is subject to change.
Of particular importance is the scope of personal liability protection arising from a corporation’s behavior. Absent personal guarantees of corporate obligations or liability based on shareholder’s own acts or conduct, lawsuits against a corporation generally do not penetrate through to place at risk personal assets of shareholders beyond their investment. When there is a penetration, this concept becomes known as the ‘piercing of corporate veil.’ It should be noted that while limited liability companies (LLCs), similar to corporations, have been subject to piercing of the veil, the formalities associated with LLCs tend to be less burdensome, making them preferable to some business owners. As a practical matter, regardless of the form, a small business should expect the claimant to also target the members, shareholders, officers and directors individually by attacking this veil of protection. This is particularly true when the corporation or LLC has little or no assets, thereby ‘forcing’ the claimant to attack this protection and go after the owners to recovery money that the business may not be able to satisfy. Any grounds to fear that the company may (legally or otherwise) transfer out its assets prior to judgment is also a motivation.
The strength of this protection in avoiding imposition of personal liability varies significantly across state lines. For instance, contrary to New York, Nevada will impose personal liability only when litigant can show that fraud has been perpetrated. Even if the corporation fails to honor its end of the bargain or causes personal injury, or fails to properly follow corporate formalities (such as issuing stock, holding designated meetings, selecting officers and directors to perform specified roles and formalizing its corporate determinations), Nevada courts are likely to protect individual owners from exposure to liability. Finding out the identities and financial information of corporation’s stockholders is also not an easy matter, since providing stockholder information and related financial data about the corporation or its owners, to Nevada Secretary of State, is neither required nor made public.
While the above protections are considered strong in Florida, they are (arguably) slightly weaker compared to Nevada, because there are additional allowances, the occurrence of which will result in Florida courts piercing the corporate veil. One of the required factors considered by Florida courts, is the failure to maintain corporate formalities and to treat the corporation or the LLC as a separate entity (except for tax purposes). Thus, if the corporation is a mere “alter-ego” designed to benefit the shareholders, or is engaged in fraudulent, bad faith or illegal conduct, there is a much higher likelihood the corporate shield will be destroyed. However, if you have created and running a bona fide business in good faith, and you are treating the corporation or the LLC as a separate entity from yourself and other owners, such as by observing corporate formalities and keeping business and personal assets separate, the courts are unlikely to permit such a personal exposure. Additionally, while Florida Statutes 608, does not require managers or managing members to be initially listed with division of corporations, banks and other institutions usually require such information to open a business account and to transact business. For more information please see Florida Supreme Court’s decision in Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114 (Fla. 1984) and F.S. 608.
|Confidentiality / Disclosure||LLC – Does not require managers or members of an LLC be listed or made public. C Corp - Does not require shareholder, director or officer names be listed or made public but director / officer information will be required in subsequent annual filing.||LLC – Does not require managers or members of an LLC be listed or made public.
C Corp - Does not require shareholder, director or officer names be listed or made public.
Publication of an LLC, is mandatory and generally requires publishing the articles of organization depending on the county.
|LLC – Must provide in the initial / annual list, the name, post office or street address of each manager or each member, if there is no manager.
C Corp – Must provide name and address of President, Secretary, Treasurer and Director.
|LLC – “The articles of organization shall be executed by at least one member or the authorized representative of a member.” F.S. § 608.407(3). “The articles of organization may also, but need not, identify one or more persons authorized to serve as a manager or managing member…” F.S. §608.407(6). But, see F.S. §608.4511(1)(e) & §608.4511(4) requiring said information in the subsequent annual report.
C Corp – Similar to above. See F.S. §607.0120(6)(a) & (b); F.S. §607.0202(1), and F.S. §607.0120(1)(e) & (4).
|Protection from loss of owner’s personal assets from lawsuit||Very strong||Intermediate||Very strong||Strong|
|Availability of clear & concise case law to reduce prospective liability||Strongest||Strong||Strong||Strong|
|Publication of LLC formation required?||No||Yes, LLC must publish notice of its formation within 120 days of formation, once a week for 6 consecutive weeks in 2 different newspapers.||No||No|
|Capitalization||No minimum capital requirement (beyond authorized shares)||No minimum capital requirement||No minimum capital requirement||No minimum capital requirement|
|Annual reporting / registration fee (domestic).||LLC Initial filing fee = $90
LLC Annual renewal fee = $300
Corp Initial filing fee = $89
Corp Annual renewal fee = $50 annual report fee plus franchise taxes based on authorized shares. (No need to purchase DL business license if not conducting business in DL.)
|LLC Initial filing fee = $200 (+ Publication cost & $50 for Certificate of Publication).
LLC Biennial Reporting fee = $9 Corp Initial filing fee = $135
Corp Biennial renewal fee = $9
|LLC Initial filing = $75 for Articles of Organization + Business License fee of $200 + List of initial managers or managing members = $125. Total = $400.
LLC Annual renewal fee = License fee of $200 + List of initial managers or managing members = $125. Total = $325.
Corp Initial filing fee = $75 (or more based on authorized shares) + License fee of $200 + List of initial president, secretary, treasurer and director of variant amount)
Corp Annual renewal fee = License fee of $200 + List of initial president, secretary, treasurer and director of variant amount)
|LLC Initial filing = $125
LLC Annual renewal fee= $138.75
Corp Initial filing fee = $70
Corp Annual renewal fee = $150
If you are in the process of forming a company in Orlando, Tampa or anywhere in Central Florida, and need to decide which the best location for the business entity, we highly recommend that you obtain experienced legal counsel. Our Orlando business attorney can be reached at (407) 205-2330. You may also fill out the online form provided on this page and our we will contact you shortly. We have helped many businesses in the past navigate through this maze and would be honored to help you too! We value your privacy and will keep any information strictly confidential.
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