Choosing The Best Business Structure For Liability Protection

The first step to launching any type of business is determining what sort of Business Structure it will have. This decision is not to be taken lightly, as it will have major consequences for protecting your personal assets from any legal liabilities related to the business. Start with this quick rundown of the best available options and how Jurado & Farshchian, P.L. can help.

Sole Proprietorship
Any business owned by a single individual can be a sole proprietorship, in which the owner and the business are legally indistinguishable from one another. That means you will not need to file or complete any agreement or founding documents—but it also means that your personal and business assets are one in the same. Since a sole proprietorship is not a distinct legal entity from its owner, any debts or liabilities incurred by the business can potentially be intertwined with the owner’s personal assets. So, if your business is subject to a lawsuit, lien, or judgment, your non-business real property can be on the line. Thus, however tempting the simplicity of a sole proprietorship may be, it should be avoided at all costs if liability protection is important to you.

General PartnershipA step above a sole proprietorship in terms of its complexity and benefits, a general partnership is a legally distinct entity from its founders and owners. In fact, it is automatically recognized whenever two or more individuals or entities join to create a business, although it can also be established through a written partnership agreement filed with the Florida Department of State—otherwise, the state’s default partnership rules apply.

A general partnership has many advantages over a sole proprietorship, not least of which is the “pass-through” income tax status that helps partners avoid double taxation, since the partnership’s profits and losses are reported solely on each partner’s individual federal tax returns, rather than on the partnership tax return. Nevertheless, even as a distinguishable legal entity, a general partnership still does not offer personal liability protection: as with a sole proprietorship, liabilities incurred by the business could potentially impact the personal assets of each partner.

CorporationIn several respects, corporations are not unlike general partnerships: they are legally distinct from the individuals who own and operate them, and they are created by filing founding documents that spell out the rights and duties of officers —called articles of incorporation—with the Florida Department of State. Moreover, an “S corporation” provides the same “flow-through” tax benefit that avoids double taxation. The alternative “C corporation” does not have this feature, though it lacks the limitations of the S corporation in terms of the number of shareholders and the type of stock available.

However, both types of corporations differ from a partnership in one key way: they each offer liability protection. The assets of the business and of its individual owners and officers are legally separate, so any lawsuit, lien, or judgement related to the business affects only the assets of the business.

Limited Liability Company (LLC)
As its name makes clear, the limited liability company (LLC) offers liability protection to business owners, essentially combining elements of the general partnership and the corporation. Like a corporation, it is formed by filing founding documents, called articles of organization, and like a partnership, it does not need an operating agreement, though it will be regulated by Florida’s default rules in lieu of one.

Because the LLC offers both pass-through tax benefits and limited liability, it has increasingly become one of the most popular business structures in Florida. However, beard in mind that if liability protection is your primary goal, a single-member Florida LLC may be less effective than a multiple-member Florida LLC, due to recent Florida case law and statutory changes.

Choosing the Right Business Structure with the Help of Jurado & Farshchian, P.L.Liability protection is only one of several factors that should be taken into consideration when choosing a business structure for your business. Given the gravity of this decision, it is not something to be done lightly nor without professional legal guidance. Jurado & Farshchian, P.L. attorneys have ample experience assisting entrepreneurs in choosing the best business structure for their goals. We can also help with the formation process and can continue to provide guidance and counsel throughout the course of your business.

For more information on our business services, do not hesitate to contact me at (305) 921-0440, or email me directly at [email protected].

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