Business Structure

Sole Proprietor or LLC?

Planning on starting a business? One of the first decisions you'll need to make is how to structure your business. Popular choices are to form the company as a Limited Liability Company (LLC), a Sole Proprietorship, or a Partnership.

Each has advantages and disadvantages, and depending on the type of business you are starting, you could save yourself a significant amount of money by choosing the right one for your needs.

The primary reason most people choose a Limited Liability Company as their business structure is the protection from personal liability. While it may not save you money from the outset, the personal liability protections of an LLC could save you everything.

In an LLC personal assets are separated from business assets. So, if for example, you, a business owner defaults on a personal debt, the creditor cannot collect the debt from the business. Although, Florida allows single member LLCs this type of asset protection has eroded in recent years. If you are entering a risky business such as investment real estate, you might consider forming your LLC in Delaware or Nevada. These two states offer more asset protection than Florida due to recent court rulings, particularly Olmstead v FTC.

Asset Protection of Florida LLCs Has Eroded

Olmstead was based on a creditor seeking payment from a single member LLC, and because of that court ruling debt collection became easier – and asset protection decreased. You may consider including in your LLC one or more additional members to maximize asset protection. Adding additional members, as in a partnership, could create the possibility of a loss of control of the business. So tread lightly. Partners can be necessary at times, but can also cause far multiple problems and power struggles. If your operating agreement is written correctly, you may be able to avoid many of these problems and power struggles. In Florida, as in Delaware and Nevada, it is not necessary to file your operating agreement with the state, but it is highly recommended that you have an operating agreement.

Sole Proprietorship Allows Maximum Control

A sole proprietorship provides a business owner with maximum control of his business, but has no inherent separation of the business from the owner. So, if your business is involved in a lawsuit, and you don't have the protection of an LLC your personal assets could be at risk.

Sole proprietorships and LLCs are easy to set up. Depending on the type of business, the set up may be no more than applying for and paying for the required state, county, and local licenses. Limited liability companies are set up through the state of Florida Division of Corporations When you set up an LLC you still may be required to maintain other licenses just as you would as a sole proprietor.

If you operate a sole proprietorship and use your legal name, there is no need to purchase a fictitious name, commonly called a “DBA” - which stands for “doing business as”. However, if you operate your business using anything other than your legal name then you do need to purchase a fictitious name. So if your name is John Smith, and you operate your business as John Smith, and only advertise your product or services in connection with your name, no DBA is fine.

For document preparation assistance creating your business structure -- please visit our document preparation page or call 800-515-0496.

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