Having the opportunity to start a business is part of the American Dream. Miami-Dade County is definitely playing by growing rapidly in the expansion of small business. According to a 2018 study by Florida international University, more than 82,000 small businesses employ 53.3% of Miami-Dade County’s workforce. The rest of the United States tend to have large companies that employ the majority of its workers.
Starting a new business can be scary with all of the legal issues that arise, the taxes one may incur, the fear of losing money invested, etc. To deal with these issues, it is best you consult an attorney to ensure all of your questions are answered and there are no hidden surprises.
Hypothetically, you may want to start a business selling widgets. Now, the question is what type of legal structure should you select for your widget company – corporation, limited liability company (“LLC”), partnership, etc.? Choosing the right legal structure is important in order to avoid any unpleasant surprises.
You may have heard of the double taxation corporations incur. Double taxation occurs when the legal structure is taxed separately from the owners and shareholders. The owners/shareholders will be taxed when there are dividends or distributions from the corporation to them. However, not all corporations have to deal with double taxation. A Subchapter S Corporation (“S-Corporation”) must meet specific Internal Revenue Code (“IRC”) requirements and uses pass-through taxation instead of double taxation Subchapter C requires. When ownership in a S-Corporation occurs, the company must report to the IRS and the prior owner their proportionate share of profits and losses for the portion of the year that the owner held the stock using. Other pass-through taxation occurs in Subchapter K. Subchapter K is used for LLCs and partnerships.
At what point does the owner of a company stop being liable for the company’s debts or obligations? This is a very important matter when choosing the right type of legal structure. A sole proprietorship, for example, leaves the owner personally liable for all of the business’ financial obligations. Partnerships, which involve two or more people who agree to share profit and losses of a business, have different types of liability. For example, a general partnership would leave each partner personally liable for the financial obligations of the business. A limited partnership leaves the general partner, not the limited partner, financially liable. Corporations, on the other hand, permit owners to avoid personal liability. Finally, the newish type of legal structure, LLCs, are a hybrid of partnerships and corporations. LLCs have pass-through taxation (see above) and owners are shielded from personal liability.
There are many other factors to consider when starting a new business – cost of formation, operating agreements, employment, wages, etc. To ensure you have all of your bases covered, it is highly suggested your contact a business attorney.