Should I Form an LLC?

Deciding to open your own business is just the first decision in a long string of decisions that will be necessary to effectively operate your new business. Along with deciding what your name will be, where you will be located, how you will market, and numerous other things to consider, you should put some thought into what kind of business entity you would like to operate as. There are numerous choices, you can be a sole proprietor, a partnership, a limited partnership, a limited liability company, a non-profit corporation, a for-profit corporation, and the list goes on. While no single answer is right for everybody (if there was one right answer, why would we need all those choices?) there are some general guidelines that apply to many businesses.

Running your business as a sole proprietor is almost never recommended. This type of business structure is really no business entity at all, you simply operate a business as an individual and are provided with no liability protection. That means that if somebody has a claim against your business, they have a claim against you personally.

In contrast, you may elect to organize your business as a limited liability company (LLC) or a corporation. The operation of these business structures are governed by the statutes in the states where the organizations are formed. In Florida, LLC’s and corporations may be formed by completing and submitting documents on the website www.sunbiz.org. Properly forming an LLC or a corporation can provide the business owner with significant protection from liability. If the entity is formed and maintained in accordance with governing statutes, the owner(s) may be protected from personal liability for actions arising from the operation of the business.

However, it is often desirable to do more than simply file the basic paperwork with the state to form your business entity. By drafting articles of organization for an LLC or articles of incorporation for a corporation, you may be able to change the default rules that would apply to your entity in the absence of such documents. This can be valuable, particularly when more than one person is involved in the business. Documents may be drafted which clearly identify each party’s roles and responsibilities with respect to the business. Having this information documented may avoid future conflict between business owners because they have had the opportunity to think about and plan for unexpected events while drafting the documents and can simply refer to them for guidance if they cannot agree as to how the company should be managed. Many different provisions can be added to such documents to allow your business to operate they way you would like it to.

Finally, the decision of what kind of business entity to form should not be made without consulting with an accountant. The selection of your business entity may significantly affect your tax liability and you may choose either an LLC or a corporation based upon what types of income and expenses you incur.

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