If you wish to form a Florida corporation through which to carry out your business activities, you should consider the formation of a “Subchapter-S” or “closely-held” corporations. If your business meets the minimum requirements (i.e. domestically incorporated, less than 100 shareholders, one class of stock, all shareholders are U.S. citizens, etc.), you can elect via Form 2553 to have it taxed under Subchapter S of the Internal Revenue Code. Thus, your business will avoid the “double taxation” – tax on corporate profits and shareholders’ dividends – that is characteristic of corporate entities. Pursuant to Florida Statutes, Corporations are required to follow certain formalities, including the election of a board of directors, appoint of officers, holding of annual meetings, and to keep on hand the books, records and minutes of meetings. Additionally, it is recommended that corporations with two or more shareholders have a Shareholders Agreement prepared in order to establish how a company should be owned and managed.Most of my clients believe that forming a corporation is as easy as 1-2-3 and that there aren’t any pitfalls in doing so. While Florida is more sympathetic to defective corporation formation than many states, it is easy to leave yourself open to liability if it is later found that you forgot some important step. For example, if you, as a promoter – one who acts on behalf of a corporation not yet formed – enter into a contract with a third party (i.e. to engage in a business transaction), the corporation itself is generally NOT liable for any losses sustained as a result of it. You are exclusively and personally liable for said losses and will remain liable until the corporation is formed in accordance with Florida law and explicitly takes over such responsibility. Here is a rundown of what goes into the formation of a corporation in Florida, and the consequences of doing so improperly.
A corporation that is formed in complete compliance with Florida law is referred to as a de jure corporation To constitute a de jure corporation, the corporation’s incorporator – one who signs/ files the necessary paperwork with the state on behalf of the corporation – must appropriately draft and file the Articles of Incorporation. In Florida, the Articles MUST include the following:
The Articles MAY include:
Also, in Florida, a corporation must file an annual report with the Florida department of state in order to be qualified to do business in the state; if it doesn’t, it may not bring or defend against any suit in a Florida court and may be involuntarily dissolved. Furthermore, the corporation must at all times maintain a registered office and agent in Florida. And to effectively constitute an independent entity, the corporation must also possess and operate under an Employee Identification Number (EIN), which is obtained from the I.R.S. via completion of I.R.S. Form SS-4. Without such an EIN, the corporation cannot open a business checking account or obtain credit from suppliers in its own name. Setting up a Florida corporation versus other entities does have some drawbacks.
In addition to the tedious corporate formalities, including annual meetings, there are costs associated with setting up and maintaining a corporation. For example, you will be required to pay an initial filing fee of $35.00 and a registered agent fee of $35.00, but you will also be made to pay fees pursuant to your submission of each required annual report. These fees vary according to the nature of your business and the date on which you submit your report (i.e. if your business is for profit and you submit your report after May 1, the fee is $550.00; if before May 1, the fee is $150.00). Additionally, you will be required to file separate corporate tax returns, which should be prepared by an accountant. You should remember, nonetheless, that if you form a corporation that satisfies ALL of the above-noted requirements, you will be entitled to the various protections that make corporate formation so attractive in the first place (i.e. against the imposition of personal liability for the entity’s debts/ obligations and tax breaks).Contact an Experienced Business Law Attorney
If you would like more information about this topic, contact Lawrence Tolchinsky to find out how he can help you. You can contact him by phone at 954-458-8655 or by e-mail through this web site to schedule an appointment and learn more about title insurance. He offers a free initial consultation.
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