Your first step is determining whether to be a LLC, S-Corp or C-Corp.
All three offer liability protection. Liability protection is a bright line distinction between what you do while working for the company and who you are as an individual. For instance, if you are a plumber and you make a mistake on the job that floods a house, the homeowner can sue your company but you could be protected. That is liability protection. If you don’t have a company to protect you, then you can personally be liable for the damages. This is an important benefit but there are some simple rules to follow. It is very important that you always keep business and personal separate. If you have a business credit card or checking account, never use that to pay for personal items. More on that in a later blog.
There are other differences between and LLC, S-Corp and C-Corp, but a major distinction would be taxes. A LLC or S-Corp can offer pass through accounting. Pass through accounting means the income is not taxed at the corporate level. It is only taxed at the individual owner’s level. Whatever the company makes goes directly to the individual owner’s tax bill.
A LLC or S-Corp can also elect to be taxed as corporations. The IRS will treat the business as a separate taxpayer. The C-Corp is a different animal. It will pay tax on any profits it has made. The money flows to the owner in the form of a salary, just like the other employees. The salary will be taxed as income. Then, if the C-Corp distributes profits by means of dividends, the shareholders will be taxed on those dividends. A small company where the owner is also the shareholder, will have its profits double taxed. This is not the best corporate structure for a small business.
One benefit for a C-Corp is that it can retain and accumulate earnings (within reasonable limits) from year to year. The C-Corp is ideal for companies that will be looking for investors. Investors will be given shares in the C-Corp and will receive dividends.
Your next step will be the process of creating the company.
In Florida, this can be done on-line in a few minutes. Go to www.SunBiz.org which is the Florida Department of State, Division of Corporations website.
1. Determine if the name you selected is available. You are going to check in two places. First, look for the menu item “Document Searches.” Select the category “Corporation|Trademarks|LLC|LP”. You can “Inquire by Name” and enter in the name you want to use. Second, again look for the menu item “Document Searches.” Select the category “Fictitious Names”. While someone may not have selected the name you want to use as a name for a company, they may have selected it as a d.b.a. (doing business as).
2. If the name is available, select the menu item “E-Filing Services”. You have four choices in the type of company you want to form. You can create a “for profit” corporation by selecting the “FL Profit Articles of Incorporation”. You can create a “not-for-profit” or charity corporation by selecting “FL NonProfit Articles of Incorporation”. You can create a simple and quick LLC by selecting “FL Limited Liability Company Articles of Organization”. Finally, if you are going to be an association of two or more persons to carry on as co-owners of a business for profit, you can select “FL Certificate of Limited Partnership”. If you are not sure what you want but you need to get a company going today, you may want to select a LLC. An LLC can always be converted to another entity later.
Once you have worked your way through the instructions on SunBiz.org and have a company, you will want to apply to the IRS for an Employer Identified Number (EIN). You can do this through the mail system by filling out a Form SS-4. But you can also do an online search for “IRS EIN Application” and it will lead you to the on-line form. Once it is completed, you will receive your EIN.
Congratulations, you have just created a company.