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Below are some common questions relating to business law and the business formation process. If you have any more detailed questions, please do not hesitate to contact us to see how we can assist you.
What are the common types of Florida businesses?
A sole proprietorship is the simplest and most common structure available to form a business. It is an unincorporated business which is owned and run by a single individual, with no legal distinction existing between the business and the individual owner. A sole proprietor is entitled to all of the profits from his company and is also responsible for all of the debts and obligations.
A partnership is a single business entity wherein two or more people share ownership as partners. Each partner may contribute to certain aspects of the business, such as money, property, labor or skill. In return, each partner receives a share of the profits and losses of the business. In Florida, partnerships may take on several forms. A general partnership (GP) is one in which all partners are personally liable for the debts of the company. A limited partnership (LP) is one in which there are two classes of partners, one or more general partners who share personal liability for the debts of the company, and one or more limited partners who are not personally responsible for the debts of the company. A limited liability limited partnership (LLLP) is one where neither the general partners nor the limited partners are personally liable for the debts of the company.
A corporation is a legal entity that is considered separate and distinct from its owners, who are known as shareholders. Each shareholder owns one or more units of stock in the corporation which determine that shareholder’s percentage interest in the corporation as a whole. The corporation itself may be governed by one or more directors and officers. In Florida, corporations may be either for profit or nonprofit. Florida corporate shareholders generally enjoy personal liability protection from the debts and obligations of the corporation.
A limited liability company (LLC) is a form of business entity which borrows its structure from aspects of both the partnership and the corporation. Owners of an LLC are known as members and their ownership interests are known as membership units. The LLC may be member managed by the individual owners or it may be manager managed by one or more individuals who may or may not be owners. In modern business law, LLCs are often considered to be among most desirable of business structures due to their flexibility in matters such as governance, formality, and tax planning.
How can I decide which Florida business entity is right for me?
Selecting the proper business entity requires a thorough and thoughtful consideration of complex concepts such as business purpose, tax planning, liability protection, management structure, governing law, statutory formality, and succession goals. Given the uniqueness of every situation, it is often difficult to provide a clear answer to this question without sitting down and determining the specific needs of the business, both presently and in the future. This is why it is important to discuss business entity selection with a business law professional before forming the business. Otherwise, if at some point in the future the owner determines that the business structure is improper, the cost of making a change could be far greater than it would have been at the outset.
What is corporate governance and why is it important?
The term corporate governance may indicate any number of rules, practices, and/or processes by which a company is directed and controlled. Oftentimes corporate governance terms will be outlined in the company’s formative documents (e.g. certificate of partnership, articles of incorporation, or articles of organization) and further clarified and expanded by later documents (e.g. partnership agreement, bylaws, or operating agreement).
While it is not strictly necessary that corporate governance terms and practices be pre-planned and memorialized in a formal writing in order to be given legal effect, this is always a good idea in practice. For one thing, it is often easier to address potential ownership conflicts before they arise, when the parties involved are capable of taking a more objective position and committing it to writing. Additionally, when a company does not have any governing documents, the Florida Statutes may take over as gap fillers which can lead to unplanned or unpleasant results.
What is business succession planning?
Business succession planning considers the formulation of strategies for transitioning company management and/or ownership from one party to another. Preparing for the death or disassociation of an owner is vitally important for ensuring any company’s ongoing stability and continuity. Unfortunately, this is an aspect of business formation which is often overlooked at the early stages but which has the potential to cause significant problems when an issue eventually arises. Restrictions on transfer of ownership interest, proper company valuation method, buyout financing, and tax consequences are just a few examples of issues which should be addressed as part of an effective business succession plan.