How Do I Choose an Entity Type?
September 24, 2020
How Do I Choose an Entity Type?
When starting a business, a business owner must first choose their entity type. Two of the most popular entity types are the limited liability company (LLC) and the corporation. Choosing between these two types of entities can be difficult for business owners who are not familiar with the unique features of each type. To choose the right one for your business, you should be aware of their similarities and differences.
Similarities Among Entity Choices
Limited liability companies and corporations are types of legal business structures—ways to legally organize a business under state law. Both of these legal structures provide limited liability. Limited liability means that a person or entity’s legal, and therefore financial, liability is limited. Owners are protected more under limited liability structures because they are not personally liable for the business’s liabilities or debts, although there are some exceptions. The objective of choosing an entity that provides limited liability is to protect business owners’ personal assets from being reached in lawsuits against the business or by the business’s creditors. LLCs and corporations both also require documentation to be filed with the state government at the time of formation. A fee to register the business entity must accompany the filing.
Differences Among Entity Choices
Despite significant similarities, LLCs and corporations also have several distinguishing characteristics. The LLC is a newer entity structure and provides more flexibility than the corporation. However, LLCs often mimic corporations in their planning and legal documentation to some degree. Here are some of the key differences between these two entities:
- Naming Requirements. This is a small but significant distinction between corporations and LLCs. In most states, statutory law requires that the name of an LLC end with the words “Limited,” “Limited Liability Company,” or an abbreviated form of those terms. In contrast, the name of a corporation must end with “Incorporated” or “Corporation. This distinction is important because your application may be rejected if you fail to comply with these naming requirements. Use care to ensure that your application is not disqualified due to what may seem to be a minor mistake.
- Ownership Structure. LLCs and corporations have different ownership structures. The owner of an LLC is typically called a member, and ownership interests can be defined by units (similar to shares of corporate stock) or by percentage. A state’s LLC statute may be a key factor in how members choose to define ownership or, in other instances, members may structure ownership as they like. Unlike a corporation, ownership interests in an LLC do not have to reflect a member’s contribution of money or property to the LLC. In cases where there are fewer owners, and there are fewer limitations as to how ownership interests are distributed, members may also opt to describe ownership in percentages. On the other hand, the owner of a corporation is called a shareholder or stockholder, and the units of ownership are called shares or stocks. The structure of the corporation transfers easily by dividing ownership into these units. LLCs with ownership interests consisting of units borrow this structure from the corporation, reflecting the LLC’s flexible nature.
- Management. LLCs and corporations also diverge in their management. LLCs typically take one of two basic structures: member-managed or manager-managed. In manager-managed LLCs, the members conduct the day-to-day management of the LLC. In manager-managed LLCs, one or more managers, who may or may not be members of the LLC, have the authority to make decisions for the entity. In manager-managed LLCs, unless otherwise dictated in the operating agreement or company formation documents, a member of the LLC can serve as a manager. An LLC’s operating agreement may even require that managers of the LLC be members. In corporations, by default, a board of directors has management authority. The board is answerable to the shareholders and is charged with the day-to-day management functions. The members of an LLC also have the flexibility to choose to create a board of managers similar to a corporation’s board of directors.
- Taxes. A major area of distinction between corporations and LLCs is the tax structure. LLCs, unless they choose to be taxed as a C corporation, enjoy pass-through taxation. This means that the LLC entity itself is not taxed; rather, the taxes flow through to the LLC’s owners. On the other hand, corporations are subject to double taxation. This means the corporate entity must pay taxes on corporate income, and the corporation’s shareholders must also pay taxes on the dividends they receive. 5.Maintenance. To maintain their legal status, both of these entity types require some degree of maintenance; however, the complexity of this maintenance differs. In most jurisdictions, LLCs require some form of regular reporting (annually in many states) to be filed with the relevant state agency. An LLC typically must also pay annual fees and taxes to maintain its legal status. By contrast, a corporation requires annual meetings of shareholders and the board of directors in addition to filing the annual report.
We Are Here to Help
Choosing between these two legal entities requires a great deal of consideration and depends upon your unique needs and goals. If you need assistance weighing the risks and benefits of each business type, please contact us today or schedule an appointment using our online scheduling. Our attorney is ready and available to provide the analysis you need to make the best decision for you and your business.
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Contracts are the backbone of any business transaction, defining the rights, obligations, and responsibilities of all parties involved. Whether you're forming a partnership, entering into a vendor agreement, or hiring a new employee, having a well-drafted contract is essential to protect your interests and avoid future disputes. At Brandon Stanko, P.A., a law firm in Florida, we specialize in drafting and reviewing contracts to ensure that your business is safeguarded from legal risks.  Why Contracts Matter Contracts are legally binding agreements that set the terms of a relationship between two or more parties. They provide clarity on the responsibilities of each party, the expected outcomes, deadlines, and consequences of failing to meet those expectations. Without a proper contract in place, misunderstandings can arise, leading to disputes, costly litigation, and damage to business relationships. Key Elements of a Contract A well-drafted contract should clearly outline the following key elements to avoid ambiguity and potential conflict: Offer and Acceptance: A contract begins with an offer from one party and the acceptance of that offer by the other party. Both parties must agree on the terms for the contract to be valid. Consideration: This refers to what each party will provide in exchange for the other party’s performance. Consideration can be monetary or involve the exchange of goods, services, or other benefits. Specific Terms: The contract should outline the specific details of the agreement, including the scope of work, payment terms, timelines, and any other obligations or requirements. Dispute Resolution: A well-written contract will include a dispute resolution clause, specifying how conflicts will be handled, whether through mediation, arbitration, or litigation. Termination Clauses: Contracts should include provisions for how and when the agreement can be terminated, either by mutual consent, breach of contract, or other circumstances. Governing Law: The contract should specify the jurisdiction and governing law that will apply to the agreement. This is particularly important for businesses operating in multiple states or internationally. The Risks of Poorly Drafted Contracts A poorly drafted or vague contract can expose your business to significant legal and financial risks. Some common pitfalls include: Ambiguity: Vague or unclear language in a contract can lead to different interpretations by the parties involved, increasing the likelihood of disputes. Failure to Address Key Issues: Missing or incomplete terms, such as payment deadlines or performance requirements, can leave critical aspects of the agreement open to interpretation, putting your business at risk. Legal Non-Compliance: Contracts must comply with local, state, and federal laws. If a contract violates legal requirements, it may be deemed unenforceable, leading to potential legal action. Breach of Contract: A weak contract increases the likelihood of breaches, where one party fails to meet its obligations. Without proper protections in place, it can be difficult to enforce the terms of the contract or seek remedies for the breach. Why You Need an Attorney for Drafting and Reviewing Contracts While it may be tempting to use generic online templates for contracts, this approach can lead to costly mistakes. Every business agreement is unique, and contracts should be tailored to reflect the specific needs and interests of your business. Here’s why working with an experienced attorney at Brandon Stanko, P.A. is essential: Customized Contracts: We take the time to understand your business and the specifics of the transaction to draft contracts that protect your interests. Our contracts are customized to address the unique challenges and opportunities of your industry. Preventing Legal Disputes: By clearly outlining the terms of the agreement and anticipating potential issues, we help reduce the risk of disputes and litigation. Our attention to detail ensures that contracts are precise, enforceable, and legally sound. Protecting Your Rights: We ensure that your contracts include provisions that protect your rights, such as indemnification clauses, limitation of liability, and confidentiality agreements, helping to shield your business from unnecessary risks. Compliance with Florida Law: We ensure that your contracts comply with Florida state laws, as well as any applicable federal regulations. This reduces the risk of enforceability issues and helps protect you from legal challenges down the road. Reviewing Contracts: Whether you’ve been presented with a contract to sign or you’re drafting one from scratch, it’s important to have an attorney review the document before finalizing it. Our team will carefully review every aspect of the contract to identify potential problems or ambiguities and make recommendations for revisions. Types of Contracts We Handle At Brandon Stanko, P.A., we assist clients with drafting and reviewing a wide variety of contracts, including: Employment Contracts: We draft and review employment agreements, including non-compete clauses, confidentiality agreements, and severance agreements, to protect your business and ensure compliance with labor laws. Vendor and Supplier Contracts: Well-structured contracts with vendors and suppliers are essential for protecting your business from delays, defects, and other issues that can disrupt operations. Partnership and Shareholder Agreements: We help businesses formalize partnerships and shareholder arrangements to clarify the roles, responsibilities, and financial stakes of each party. Lease Agreements: Whether you’re leasing commercial property or equipment, we draft and review lease agreements that protect your interests and ensure compliance with Florida real estate laws. Sales and Service Contracts: We draft contracts that outline the terms of sales or service transactions, including warranties, delivery schedules, and payment terms, to protect both buyers and sellers. The Benefits of Working with Brandon Stanko, P.A. At Brandon Stanko, P.A., we understand the critical role that contracts play in the success of your business. With years of experience in contract law, we are committed to providing personalized and practical legal solutions to protect your interests. Our approach includes: Attention to Detail: We leave no stone unturned when drafting or reviewing contracts, ensuring that every aspect of the agreement is clear, precise, and legally enforceable. Client-Focused Service: We take the time to understand your business objectives and tailor our legal services to meet your specific needs. Proactive Risk Management: By addressing potential legal issues upfront, we help reduce the likelihood of disputes and protect your business from unnecessary litigation. Ongoing Support: Our commitment to your business doesn’t end once the contract is signed. We provide ongoing legal support and advice to help you manage your contractual relationships effectively. Drafting and reviewing contracts is a critical component of any successful business strategy. At Brandon Stanko, P.A., we are dedicated to helping Florida businesses protect their interests through well-crafted contracts that minimize risk and ensure compliance with the law. Whether you need assistance with a new contract or require a thorough review of an existing agreement, we are here to help. Contact Brandon Stanko, P.A. today for a consultation and let us help you safeguard your business with comprehensive contract drafting and review services.
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Business transactions fall into two main categories: Routine Transactions These are day-to-day business activities, such as signing contracts with suppliers, purchasing materials, or handling payroll. Routine transactions are typically smaller in scale but are vital for maintaining smooth business operations. Complex Transactions These transactions involve significant changes to a business’s structure or ownership, such as selling a business, acquiring another company, restructuring corporate entities, or securing financing for major projects. These deals require careful planning, due diligence, and legal oversight. Types of Business Transactions in Florida Business transactions in Florida can take many forms depending on the nature of the business and its goals. Some of the most common types of business transactions include: Business Formation and Structuring Choosing the right business structure is critical for long-term success. Whether you’re forming a sole proprietorship, partnership, limited liability company (LLC), or corporation, each structure has unique legal and tax implications. An attorney can help you choose the best option based on your business needs and file the necessary documents to establish the entity. Contract Drafting and Review Contracts are the backbone of any business transaction. Common contracts include: Employment Agreements Non-Disclosure Agreements (NDAs) Service Agreements Vendor Contracts Leases Partnership Agreements Having a well-drafted contract that outlines the rights and responsibilities of each party can prevent disputes and protect your interests. Mergers and Acquisitions (M&A) Mergers and acquisitions involve one business purchasing another or merging two entities into a single entity. These transactions require comprehensive due diligence, negotiation, and legal documentation to ensure that both parties’ rights are protected. Business Sales and Asset Purchases Selling a business or purchasing one can be a complex process involving the transfer of assets, liabilities, and intellectual property. An attorney can help structure the deal, conduct due diligence, and negotiate favorable terms. Real Estate Transactions Whether you are leasing, buying, or selling commercial property, real estate transactions involve significant investments and legal complexities. Attorneys can help with drafting and negotiating leases, purchase agreements, and addressing zoning or environmental concerns. Partnership and Shareholder Agreements Clear partnership and shareholder agreements are essential for setting expectations, defining roles, and outlining procedures for resolving disputes. These agreements establish how profits and losses will be shared and what happens if a partner wants to exit the business. Joint Ventures and Strategic Alliances When two or more businesses collaborate on a project, a joint venture or strategic alliance agreement is necessary to outline each party’s contributions, rights, and responsibilities. Financing and Loan Agreements Businesses often require capital to expand or sustain operations. Attorneys can help negotiate loan agreements, secure venture capital, and create other financial arrangements to support business growth. Why You Need a Business Transactions Attorney in Florida Business transactions often involve complex legal issues, and small mistakes can have significant financial and legal consequences. A business transactions attorney can provide invaluable assistance in the following ways: Structuring the Deal An experienced attorney will work to structure the transaction in a way that maximizes benefits and minimizes risks. This includes selecting the appropriate business entity, drafting agreements that protect your interests, and ensuring compliance with applicable laws. Due Diligence For larger transactions like mergers and acquisitions, due diligence is critical. Your attorney will review the target company’s financials, contracts, liabilities, and other factors to identify potential risks or red flags. Drafting and Reviewing Agreements A well-drafted contract can prevent costly disputes down the road. Your attorney will ensure that all agreements are legally sound, clear, and enforceable. Negotiation Business transactions often require negotiating terms and conditions. An attorney can negotiate on your behalf, helping you achieve a favorable outcome without sacrificing important rights or protections. Compliance Florida has specific regulations that businesses must follow, such as licensing, tax laws, and employment regulations. An attorney ensures that your transaction complies with all relevant state and federal laws. Resolving Disputes Even with careful planning, disputes can arise. If a disagreement occurs, an experienced attorney can help resolve the issue through negotiation, mediation, or, if necessary, litigation. The Importance of Due Diligence in Business Transactions Due diligence is the process of thoroughly investigating a business or asset before completing a transaction. It is especially important in complex transactions like mergers, acquisitions, or business sales. Due diligence involves reviewing financial statements, contracts, employment agreements, intellectual property, and more to ensure that there are no hidden liabilities or risks. Key areas of due diligence include: Financial Review: Examining the business’s financial health, tax history, and revenue streams. Legal Compliance: Ensuring that the business complies with local, state, and federal regulations. Contractual Obligations: Reviewing all existing contracts to identify any clauses that could impact the transaction. Intellectual Property: Verifying the ownership and protection of intellectual property assets, such as patents, trademarks, and copyrights. Employee and Benefit Plans: Understanding employment agreements, benefit plans, and any potential liabilities. How Brandon Stanko, P.A. Can Help At Brandon Stanko, P.A., we understand that every business transaction is unique, with its own set of opportunities and challenges. Our firm has extensive experience handling a wide range of business transactions in Florida, from simple contract negotiations to complex mergers and acquisitions. We are committed to providing personalized legal counsel that aligns with your business goals and protects your interests. If you are considering a business transaction or need help navigating a complex deal, contact us today to schedule a consultation. We are here to provide the guidance and support you need to ensure your transaction is successful and legally sound.
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