Are you thinking about starting a business? Maybe you’ve been providing a product or service on the side, from your main job. Up until recently your “side-project” has been more of a hobby than anything else. But it’s begun to make enough money that you are considering making a go of it full-time.
As it has grown, operating it has become more complex. What was once simply a “thing” you did to make a little extra income, or a hobby to occupy your time has become a larger, more complex, riskier operation, exposing you, your family, and anyone working with you, to more legal, financial and tax liability.
It may be time to recognize your success and upgrade that side job or hobby into a more formal operation. Starting a business can be incredibly exciting and rewarding. But it can also be confusing and does come with some risk.
Our goal with this post is to provide an outline on how to start a business in Florida along with some resources we think will help you move through the process.
The Boom InNew Business
Starts in Florida
The combination of Covid-19 lay-offs, advanced technology reducing the need for expensive central locations, and Americans’ ever-present desire to “have their own business” have spurred increasing levels of new business formation.
According to The Economist magazine, losing their job and having greater financial security from government programs was the stimulus for the country’s new entrepreneurs to “move away from dying sectors [of the economy] towards up-and-coming ones.”
Florida leads the country in new business starts, well above No. 2 California and No. 3 Texas. In addition to being the fourth largest economy in the nation, the state enjoys a business friendly legislature, no state income tax, and a lower-than-average unemployment rate.
Zohar Pinasi, CEO of MonsterCloud, notes the cost of living and operating a business is slightly above the national averages, though well below such places as New York, California, and Illinois. While Florida is exceptionally accommodating to new businesses, the capital structure of a new entity – an LLC or partnership – continues to be one of the most critical decisions a founder makes, initially and long-term.
Why FloridaIs A Great Place
To Start a Business
With Florida’s favorable tax and regulatory environment, mix of growing innovative industries, along with the excellent lifestyle it’s one of the best states for owning and operating a business.
What you may not know about Florida is that:
- It’s a $1 trillion a year economy.
- It’s the 4th largest state economy.
- It’s the 16th largest economy in the world.
- Nearly 22 million people live in Florida.
- 300,000 people move here every year.
- 100 million tourists visit every year.
- It’s Ranked #1 for personal taxes.
- It’s Ranked #4 for corporate taxes.
- It’s Ranked 3rd best state to start a business.
- It’s Ranked 10th best state to live.
The bottom line is that with Florida’s pro-business climate, growing population, and large economy make it a desirable and affordable place to live and do business.
Before You Start A
Business You Need A Plan
Without a plan you could miss important steps that could lead to a partially formed business entity or some other issues that could negatively impact business operations in the future.
With that said, if you are an entrepreneur working on a new startup venture introducing a new unique product or service, or if you are starting a business in a complicated or heavily regulated industry, then you should consider completing a more formal in-depth business plan.
You should also keep in mind that any lenders or investors, you may be depending on to provide capital, will most likely expect you to provide them with a solid business plan.
A more formal business plan is like a road map that outlines; what you are going to do, how you are going to do it, and who you are going to do it with. It will break down stages of growth, highlight milestones for measuring success, and what your exit strategy might be. If you are unsure of how to create a business plan the U.S. Small Business Administration has some resources to help get you started.
A less formal option known as a lean business plan or lean canvas has a smaller scope, can be completed in about twenty minutes to an hour, and is far simpler to update. If you are starting a business in an area that is not very complex, or you know the market, this may be the option for you.
Both a formal and lean plans answer key questions like:
- What services or products will be produced?
- How they will be produced?
- Where will it operate?
- Who will manage the company?
- Who will control the company?
- How will the company be controlled?
- Will there be investors?
- Who are the target customers?
- How will target customers be reached?
- Who is your competition?
- What are the financial and revenue goals?
- What is the estimated timeline for profitability?
- Your management team and their responsibilities.
- How will the company be marketed?
- Do you need special licensing or permits?
Depending on the type and complexity of the business; as-well-as your experience, you could possibly get away with simply outlining how to get from point “A” to point “B” when starting a new business. Just keep in mind that later on down the road, if you need funding to expand the business, want to get a government designation, or you decide to franchise your business, you may regret taking a simpler path.
Once you have put together a plan you may want to consider having a business lawyer review it. They will be able to point out potential legal issues you may encounter that you may not have considered, as-well-as develop sound solutions for those issues before they become a problem.
Business planning is an important factor in building a successful organization for the long term.
Avoid taking short cuts setting up your new business. You may find that the time and money you save in the beginning may not be worth it in the long run.
The Initial StepsFor Starting A
Business in Florida
These Seven steps are the bare minimum of what you must do, legally. This is not intended to be a comprehensive guide. That would require far more space than is practical. Nor is this intended to replace legal advice from an attorney experienced in business formation.
At some point during the process you maybe tempted to cut corners to make the process easier, cheaper or faster. The problem is that
cutting corners can lead to unforeseen consequences that can have a serious impact on your business’ future.
With that said, we do hope this guide helps you understand the different steps that need to be completed in order to properly start a business.
STEP 1: Decide on a type of business ownership
The form of ownership, business structure (or “entity type”) you choose will decide the rules, regulations, and legalities that define your company; as-well-as, how profits are distributed and taxed. Each form of ownership has its own purpose. They each have their own advantages and disadvantages.
- Sole Proprietorship – This is the most common form of ownership. A sole proprietorship is owned and operated by a single individual. If you are taking money for a product or service you are considered a sole proprietor. Technically, it is not a legal entity. But, it is still a form of ownership. The sole proprietor must still be licensed and under certain circumstances register with the Florida Department of State.
- Partnership – Similar to a sole proprietorship except two or more individuals are equally responsible for the business and share its liabilities and profits.
- Limited Liability Company or LLC — This is the most popular legal entity for small businesses. LLCs provide limited liability protection to its members without being subjected to the rulles and regulations of a corporation. It is the easiest to set up, and the simplest to manage.
- C Corporation — this is the most complex type of entity and is generally only recommended for larger companies. There’s a lot of administrative overhead, and they have to pay corporate tax.
- S-Corporation — This is slightly more complex than an LLC, and has more of a management and compliance overhead. The increased overhead is offset by having a more tax-advantageous set up. But, you can take advantage of that by having an LLC treated as an S Corp for tax purposes.
- B Corporation – Also known as a social benefit corporation. It is a for profit entity whose purpose is to create a public benefit.
- Professional Association – This is actually a category of entities that provide services that require licensing from a professional body; such as doctors, nurses, lawyers, accountants, and architects. Entities such as; LLP (Limited Liability Partnerships, PLLC (Professional Limited Liability Company, and Professional Corporations (PC) are professional associations.
For more information about what to consider when choosing a legal entity for your situation take a look at our blog post on “How to choose a business structure”.
STEP 2: Name your new company
It will be used on all official state and federal documents and applications. It must be unique. It cannot infringe on another company’s name. Depending on the purpose of the organization you may spend a lot of time, effort and money coming up with a marketable name that describes your products and services. There are a few important considerations to keep in mind as you work through the process.
- Understand the Florida State rules for naming a company.
- Don’t use a name that is the same as, or substantially similar to any other organization in Florida.
- Don’t infringe on any copyright, trademarks, or service-marks.
- Do a name search at the Florida Division of Corporations website .
Most organizations build a brand around their legal name. Often they will trademark or service-mark their names as a way to protect their brand. It is highly recommended that you have a state and federal name and trademark search done to make sure that you are not infringing any other organization’s established trademarks.
If you are planning to market your new company using any other name than its official name you will need to register a fictitious name, also known as a DBA.
STEP 3: Set Up the legal entity
Depending on the entity, business formation can be a detailed and time consuming process.
- Setting up an LLC (Coming Soon)
- Setting up a corporation (Coming Soon)
- Setting up a nonprofit organization or charity
- Setting up a professional association – (Coming Soon)
Starting a business in some industries requires special licensing and legal considerations. For instance setting up a medical practice requires licensing at the local, state and federal level. It also requires registering with federal agencies like the DEA.
STEP 4: Register your new company
All organizations in Florida are registered by filing official documents with the Secretary of State. For LLCs that’s “Articles of Organization,” for corporations, it’s a “Certificate of Incorporation.” These are important legal documents that detail the key legal facts about your organization. You will also need to:
- Provide the contact details, addresses, and other information of the key people involved in the organization — these could be members, managers, owners, and others.
- File official documents with the Florida Secretary of State, Division of Corporations
There are a lot of online services out there that over-bill themselves as being business formation services when in reality all they do is register the company. Which may make it legal for you to operate in the state you are registered in, but may not be recognized by the IRS or courts, opening you to both tax and legal liability that could attach to your personal assets.
Just because your company is registered does not mean it is properly formed.
Registering a business in Florida means you have met the “MINIMUM” requirements for it to be formally recognized as a legal entity. It does not mean your company is properly and completely formed. Contrary to what many online business registrations services would like you to believe registering a business is not the same as forming a company.
When you register an organization in Florida, you are simply telling the Florida Department of Corporations that it exists, why it exists, who the owners and officers are, where business is being conducted, and how to get in touch with those responsible for any legal matters that need to be addressed. Registering your company is only one part of the process. None-the-less it is a critical step.
STEP 5: Register for taxes and fees
- File with the IRS for a Federal Employer identification Number (FEIN or EIN). Even if you do not have any employees or plan on hiring any employees you will need to do this. An EIN is like a social security number but for your company. Most banks will not allow you to open an account in the name of your company without it.
- Inquire and if required register with the Florida Department of Revenue. Whether or not you will have to collect states sales and use taxes is dependent on the products and services you sell.
- If you have employees you will have to file and pay Reemployment Tax (previously known as Unemployment Tax).
- Contact the County Tax Collector’s office for the county where your organization is located to determine if there are any county taxes you will be required to pay.
- Contact the City Clerk’s office for the city your organization is located in. You may be required to pay city related sales and use taxes.
STEP 6: Get the proper licensing and permits
- Is your industry regulated? If you are not sure, here is a comprehensive list of regulated industries in Florida?
- The Department of Business & Professional Regulation (DBPR) and the Department of Agriculture and Consumer Services (DACS) are the two primary licensing agencies in Florida. Here is a list of services that require a DBPR license.
- You may also need to be licensed by the county as well. You’ll want to inquire at your local County Tax Collector’s office.
- Some cities require business tax licenses. You’ll need to inquire at the local city clerks.
- For special permits you may need to contact the local city or county planning and zoning departments.
- If you need federal permits or licenses then the Small Business Administration has you covered
STEP 7: Open a bank account for your company
Most business owners know not to comingle business and personal funds. Many new business owners, however, don’t realize how much paperwork some banks require to open a business account.
KYC (Know Your Customer) and AML (Anti Money Laundering) regulations require banks to gather a lot of paperwork to prove your and your business’ identity.
Depending on the bank you may be required to provide:
- Identification – You’ll need an official government ID. You’ll also need to provide personal details and identification for all the owners.
- Details about your business – Name and / or DBA, address, phone number etc. and EIN or SSN, if you are a sole proprietor.
- Copies of your organizational documents – partnership agreement, operating agreement for LLCs, and articles of incorporation for corporations. You’ll also need to provide any business licenses needed to operate.
- LLCs and corporations will also need to provide a banking resolution showing you are authorized to open the business account.
Next StepsFor Starting A
Business In Florida
Often new business owners feel that once they have chosen a legal entity, completed the proper paper work and opened a bank account that their business is fully setup.
This is only partially true. What has been accomplished so far is what is legally required to start a business in Florida. The following items are some of the steps you should take to start building a good legal foundation for your business.
It is not necessary to take these steps but it is recommended that you at least consider them.
Step 8: Leasing commercial property
Unless you’re going to be running your business out of your home, you’ll be leasing some sort of commercial space to operate out of. A commercial lease is often one of the first contracts a new business signs. Commercial leases can be complex, with unfair clauses, and may contain hidden fees or other expenses.
Even if you have found the perfect space for your business, you need to be careful. Most commercial leases are written pretty heavily in favor of the landlord. A bad lease could doom your business – no matter the location.
Commercial leases are often very technical, using terms that can be confusing or misleading. You should at a minimum have an attorney review the lease. That way you know what you’re getting into and what your rights, responsibilities and obligations are under the lease, as-well-as the landlords.
Because of the associated expense you should consider having an attorney negotiate the lease for you.
STEP 9: Essential contracts and business agreements
Many new business owners when they first start out overlook the importance of having basic legal documents tailored to your specific company. The challenge is that being in business is inherently risky. Taking the time up front to develop the essential contracts and agreements your business needs to protect itself will help mitigate that inherent risk.
For example, sales and service contracts, indemnity agreements, employment contracts, NDAs, and purchase orders are all good examples of common essential contracts, agreements and policies every business should have in place to protect itself and its owners.
Every business is a bit different, so you should work with a good business lawyer or contract attorney to determine what contracts, agreements, and policies you should have in place.
STEP 10: Protect your business' future
Just like many new business owners overlook contracts and agreements that protect the business and make operations go more smoothly, they also tend to over look essential agreements between stakeholders. Disagreements and disputes between principle stakeholders can incapacitate business operations and could potentially damage the future of the business.
A few examples of these types of agreements are:
Founders Agreement – Is an agreement between business founders that sets expectations for their relationship relative to the business ; what their rights, obligations, responsibilities and obligation are. This document is often outside the business’ governing documents.
Owner’s Agreement – Governs and manages the relationship between owners relative to the business. It is intended to help owners maintain a positive relationship by laying out suitable rules prior to conflicting and unanticipated situations arising.
Shareholder Agreement – Outlines the rights and obligations of a company’s shareholders. This document also outlines how shareholders should be treated as well as safeguards.
Buy / Sell Agreement – Outlines the process for how a stakeholders interest in a business will be reassigned due to a set of predefined trigger events.
Succession Plan – Outlines how a business will prepare for the exit of a founder or key stakeholder.
Depending on the size and scope of your business you may not need to have these agreements in place right away. But, they should be on your to do list to be done in the near future.
A FewThings To
Keep In Mind
Unfortunately, many resources out there only provide partial information or are needlessly unclear.
What needs to be done to start a business in Florida may be different to what needs to be done in another state. For that matter some industries have different more restrictive requirements. So, you need to be careful with what advice you accept and the resources you use when setting up your new business.
One last thing, once, you have your business set up, make sure your licenses and permits stay up to date. Make sure your company registration stays up-to-date as well by filing the required yearly reports and forms with Sunbiz.org. Maintain the proper documentation for your company. Corporate maintenance, properly reporting, maintaining all the proper documentation, and licensing is very important.
If corporate records are not properly maintained you and your company could find yourselves in jeopardy, if a financial, tax, or legal issue was ever to occur. Moreover, if the company is audited by the IRS and company records have not been properly maintained, they could choose to deny the validity of the business entity. That means stakeholders could be found personally liable for the debts of the business.