Thinking about starting a business? Maybe you’ve been providing a product or service, on the side, outside of your main job. Up until recently your “side-project” has been more of a hobby than anything else. But, recently your side gig, or hobby, has begun to make enough money that you are considering making a go of it full-time.
Whatever your motivation, as your new business grows, operating it will become more complex. What was once simply a “thing” you did to make a little extra income, or a hobby to occupy your time, with very little risk, has become larger, more complex, riskier operation; exposing you, your family, and anyone working with you, to more legal 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, setting up a company can also be confusing. Knowing what to do and how to do it takes time and effort. The challenge is, what you don’t know can hurt you. A lot of information out there is only partially correct. From a legal perspective some of the advice is down right scary. The concept of starting a business is a very broad topic. What has to be done to setup a company in one industry may not be the same in another. It would be nearly impossible to cover every iota of information and every possible contingency on one blog post or even several.
So, our goal with this post is to provide an outline on how to setup a business from a legal perspective. The outline and linked resources cover the basics. It is intended to give you an idea of what is involved in the process.
The information here is NOT intended to replace the advice of an attorney. We strongly advise you to consult an attorney before making any final decisions.
9 Legal Steps to Setting Up a Company in Florida
What follows is a basic overview of the legal steps necessary to start a business in Florida. This is not intended to be a comprehensive guide. That would require far more space than is practical. It is intended, however, to be a resource that points you in the right direction. It will provide you with enough specific information for you to begin the process and understand the decisions that need to be made.
Starting a business is a rather straight forward process. But, it is a serious undertaking. You will be making a good number of decisions that will impact the business’s future. Depending on the type of legal entity you choose the business formation process can get a bit complex; and, at times, can be confusing. Some decisions can have serious legal and tax implications. Other decisions will impact how profits are distributed, who manages the company, and how well you are protected from liability. Working with an experienced business formation lawyer early on in the process will help ensure that the best decisions for your specific situation are made.
STEP 1: Create A Business Plan – OK so Step 1 isn’t actually a “legal step.” You’re not required by law to create a business plan before starting a business. However, it is such an important document, I simply couldn’t leave it out. Furthermore, if you are going to be looking for funding, either through bringing in investors, or by securing a loan, a business plan will almost certainly be required. The information it contains will help you work through the other steps listed here.
Business 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?
A well thought out 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 by which you can measure success, and what your exit strategy might be. Business planning is a core component to building a successful organization. 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.
If you are working with a business lawyer , you may want to consider having them review your business plan. They will be able to point out potential legal issues at each stage of your plan; as-well-as develop sound legal solutions for those issues before they become a problem.
STEP 2: 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.
- 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. It is the easiest to set up, and the simplest to manage.
- “S-Corporation” — This is slightly more complex than an LLC, and has more of a management and compliance overhead. The increased overehead 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.
- “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.
- 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.
Each form of ownership has its own purpose. They each have advantages and disadvantages. If you are confused about which would be best for your situation, you are not alone. For more information checkout “How to choose a business structure”.
STEP 3: Name your company — I know it seems a bit odd that this is the third step. But, technically speaking, whether you choose to be a Corporation, Partnership or a Limited Liability Company will impact the company’s “official” name. 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 4: Set Up the legal entity – Once you have decided on a legal entity and chosen a name you are ready to start putting together all the paperwork necessary to actually form the legal structure. 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 5: Register your 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
You need to understand that registering your new company only fulfills the bare minimum requirements necessary to legally start a business. 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 6: Register for taxes and fees – Depending the products and services you sell, the city and county you are located in, and whether or not you have employees there are a number of different taxes and fees you will have to pay.
- 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 7: Get the proper licensing and permits – You may need to obtain special licenses and permits, from city, county, state and federal licensing and permitting agencies.
- 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 8: Open a bank account for your company – Keep your personal and company funds separate. Intermingling funds has all sorts of serious legal and tax implications. Just don’t do it. It’s a bad idea.
STEP 9: Run and maintain your business – This last step, like STEP 1, isn’t really a “legal” step in the process of starting a business, but more a word of caution. 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 legal 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.