Florida Business

Resources and Services

Select Your Business Structure

A general corporation, also known as a "C" corporation, is the most common corporate structure. It may have an unlimited number of stockholders. (The number of people you can sell stock to is limited by state law and SEC regulations.) A "close" corporation is appropriate only for the individual starting a company alone or with a small number of people. A "Close" corporation is a Subchapter S corporation. A "close" corporation is not a different type of corporation under Florida law. Subchapter S is not a different form of incorporation; it is an election made by filing form 2553 with the Internal Revenue Service. States may also have limitations on a S corporation. Florida S Corporations can have no more than 75 stockholders, can have no U.S. non-resident stockholders and it is not allowed to own or manage more than 80 percent of another corporation's shares.

Another restriction is that the "S" corporation can only have one class of stock. At first glance, this may not seem important, but it can be. For instance, if you are raising money for a corporation and want to maintain control of it without investing the major share of the capital, the only way to do it is to have common and preferred shares. Only common shares usually carry voting rights. Thus, the founder could have 52 percent or 55 percent of the common stock, but have a far smaller percentage of the overall ownership of the total outstanding shares. The other shareholders would have many more shares of preferred stock than common stock. There is also the possibility that you might want to raise money in the future without diluting the Class A common shares by issuing a different class of common stock to raise money. You can always change from a "S" corporation to a "C" corporation. Consider all aspects before electing to be a "S" corporation.

The single big advantage of a Subchapter S corporation is that it is not taxed separately from its stockholders. Income is taxed only to the individuals who receive it. A "C" corporation pays income taxes on its income. When that income is distributed as dividends to its stockholders, the stockholders than pay personal income tax on that income.

There is no difference in the incorporation between a "S" and "C" corporation. The Secretary of State could care less. This is an election the corporation would make after it is formed by filing Form 2553 with the Internal Revenue Service (IRS).

An LLC is not a corporation, but it offers many of the same advantages, combining the limited liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or partnership.

Even if you do not want to operate an actual business, incorporation is something to consider for other purposes. There is even a seminar sold in television commercials aimed at the benefits of incorporation called the "Ray Reynolds Plan for Success". (I have no personal experience with this system and can not recommend it.) A corporation is a legal entity, it is a person in the eyes of the law. Thus, a corporation, for instance, can build its own line of credit separate from your own. A corporation can do the same legal acts an individual can do. One example, which California does not like, are people there who form corporations in Montana and use the corporation there to purchase their motor home/RV, thus escaping the high taxes on these vehicles in California. Personally I have always thought it was a good idea to own vehicles in the name of a corporation.

Select Your Management Team

Naming initial directors for your corporation is straightforward. Directors are typically the key players or owners in the business. In most states, only one director is required and you may simply name yourself. In an LLC, managers or members are selected.

If your corporation will have a number of stockholders, then the stockholders will elect the board of directors. The board of directors will then elect the chairman and the officers of the corporation.

Even if you are the only director rules of corporate governance must still be followed. Proper bylaws, corporate minutes and other recordkeeping is required. Failure to properly operate the corporation can result in the corporate veil being pierced in a civil action and you may be found personally liable for the corporation's debts. Failure to file annual reports and other requirements of the state can result in the corporation being administratively dissolved. Should you continue to operate the business after that, you may be held personally liable for debts and other obligations.

Select Your Number of Stock Shares
and Par Value

Stock represents ownership in a corporation. Par value is the minimum selling price for each share of stock. Many states allow you to elect a $0 par value, to give you the most flexibility. LLC's do not issue stock, so LLC ownership is like a partnership.

A number of states, including Florida, do not require that par value be given. Some states have different incorporation fees based on the number or value of shares to be issued. This does not apply to Florida.

You are permitted to sell stock to individuals and others. There are restrictions. You are not allowed to advertise the sale of shares. Basicly you must have a pre-existing relationship with the person. A significant exemption to this rule are institutional and professional investors. See SEC and state investment regulations for the definition of these types of investors.

There are two approaches to selling stock. One, you can create a business plan and include a stock subscription. People interested in investing will sign the stock subscription which is a binding contract. There are limitations and requirements. The major limitation is that the corporation will not be formed until subscriptions total the investment the business plan calls for.

The second approach is to incorporate first and then sell stock. This approach lets you get off the ground right away, so to speak, though the company will probably be dependent upon your own money until you sell stock to others. This approach creates a greater risk for your investors as they do not know if you will really have enough money to operate the business successfully.

Although it is possible that officers are held liable should the corporate veil be pierced by fraud or serious malfeasence, stockholders are never held liable for the acts or debts of a corporation. At worst they can lose their investment if the corporation goes bankrupt.