With year-round warm weather, tax advantages, and a pro-business environment, the state of Florida is an excellent place to own a business.
Forming a business in Florida requires strategic planning and accurate execution, especially when selecting the right type of business structure for the company. In this article, you will discover whether an S Corp or a C Corp may be the best choice for your business.
Florida S Corp vs. C Corp – The Basics
Despite what many may think, S Corps and C Corps are not formed as distinct types of business structures. In Florida, all corporate businesses are originally filed with the state as C Corps.
Hence, if the shareholders in the company decided to remain under a C Corp structure, the company will remain as a C Corporation.
A C Corp becomes an S Corp when the shareholders decide to file Form 2553 (Election by a Small Business Corporation) and submit it with the Internal Revenue Service (IRS) pursuant to Subchapter S of the Internal Revenue Code.
In an S Corp, the corporation has a different tax treatment from that associated with C corps, which requires all shareholders to consent with the decision to transform the company. S Corp election may be filed anytime during the company’s existence, either immediately or years after the business was formed.
Florida S Corp vs. C Corp – Personal Liability and Taxation
C Corps are subject to double taxation. Hence, the company’s profits are subject to corporate income tax and personal income tax upon the distribution of dividends to the business’s shareholders.
In terms of taxation, S Corps offer a better structure. Similar to limited liability companies (LLCs) in Florida, S Corps are “pass-through” entities. All the income generated by the company passes through it to the shareholders, which only pay taxes individually (no double taxation).
Florida S Corp vs. C Corp – Stocks and Corporate Formalities
C Corps can issue unlimited stocks while S Corps can issue only a single class of stocks. Nonetheless, C Corps have stricter corporate formalities, which tends to attract investors due to the level of accountability involved in the operations.
In terms of corporate formalities, S Corps have fewer administrative requirements, although they have stricter ownership requirements (i.e., no foreign citizen, non-resident alien, or certain types of entities may be eligible as an S Corp shareholder).
Florida S Corp vs. C Corp – Business Limitations
Specific types of business activities are not allowed to be conducted by S Corps. Hence, some companies are not eligible for S Corp status, which includes:
- Banking entities
- Insurance companies (taxed under Subchapter L only)
- Domestic International Sales Corporations (DISC)
- Specific affiliations of corporate groups
As provided by the IRS, an owner who is also an employee within an S Corp must receive wages based on a “reasonable amount” of compensation for his or her performance. It is not possible to avoid payroll taxes by waiving the salary and exclusively receiving dividends.
In a C Corp, no shareholder is exposed to self-employment taxes on the company’s profits (although one should consider the existence of double taxation).
Most multinational companies are structured as C Corps, as this structure is well-suited for companies with a large number of shareholders, complex operations, and stocks being publicly traded.
Contact an Expert Business Attorney to Determine Which Structure is Better For Your Business in Florida
At Jurado and Associates, P.A. we have a team of experienced business lawyers to help you structure a winning business. Call us today at (305) 921-0976 or email [email protected] to schedule a consultation.