More than half of all U.S. businesses are family-owned, from behemoth corporations to tiny mom-and-pop spots. That’s according to data from the Harvard Business School, which defines “family-owned” as any business wherein multiple family members are involved as major owners or managers.
Family business attorneys know these start-ups can have great potential because they tend to involve a tight-knit group with shared core values, goals and work ethic, each personally invested in seeing the company thrive.
One of the first – and most critical – steps to launching a successful family business in Central Florida is choosing the right business structure. The importance of this step can’t be understated because it defines who are you and how you operate. As noted by the Florida Division of Corporations, there are four basic business structure options
- Sole proprietorship
- Partnership (general or limited)
Family members involved in a new business will need to weigh several criteria in making a determination, including personal exposure to legal liability, tax implications, flexibility, costs of formation and ongoing administration and future needs. An experienced small business lawyer can help you navigate the process effectively.
Why does business structure matter so much for family businesses?
As a Lake Mary small business attorney can explain, the importance of your business structure starts with the fact that professional management is pivotal to long-term success in any business. Co-owners of new businesses must be open from the beginning about their desired level of involvement and ability to carry out essential tasks. Many family-owned businesses grapple at some point with contrasting business strategies, diverging ownership criteria and contentious personal dynamics. Work environments may be emotionally-charged, creating challenges in everything from daily management to critical decisions. By starting out with the best business structure for your family, you clearly define each party’s roles and help to neutralize potential future conflicts.
Choosing the right structure may also give you certain competitive advantages. When everyone is on the same page about the mission, strategy and individual responsibility, it sets the stage for smoother operations, higher production and bigger profits.
Here is some further detail regarding your business structure options:
- Corporation. Founding a corporation involves establishing an independent legal entity that exists apart from those who own, control and manage it. If the shareholders or owners die, the corporation doesn’t dissolve because it is considered an entirely separate entity. Corporations have the ability to transact business, pay taxes and enter into contracts, while allowing owners to limit their personal liability. There are two basic types: An S-Corporation and a C-Corporation. In an S-Corporation, up to 75 shareholders can share income and expenses and then report those on individual tax returns. In a C-Corporation, the company – rather than the individual – pays taxes and assumes liabilities.
- Limited Liability Company (LLC). An LLC is one of the least complicated business structures, allowing for flexibility, pass-through tax perks and limited personal liability for business debts/ protection of personal assets. There are also no residency requirements, so owners do not have to be U.S. citizens or permanent residents. On the flip side, LLCs can have limited growth potential, and existing business converting to an LLC might incur some additional taxes.
- Partnership. A partnership can be established when two or more individuals co-own a business and share the company losses and profits. Each partner/ co-owner makes a contribution. There are two different partnership structures in Florida. General partnerships involve an equal division of responsibilities and rights among partners and each is responsible for the partnership’s debts and obligations.. Limited partnerships, meanwhile, have both general and limited partners, allowing each partner to set or limit personal liability. General partners have the right to manage the business, while those taking on a limited partnership role do not. Business profits can benefit both general and limited partners.
- Sole Proprietorship. This is perhaps the easiest and most common structure for brand new businesses. However, it may not work for all family businesses because it involves ownership and operation by a single individual, with zero separation between the business and owner. Still, sole proprietors can hire employees or independent contractors, so it may still work for some families, as long as it’s understood one person is primarily running the show. Sole proprietors must operate under the owner’s legal name, or else register with the Florida Division of Corporations.
If you have questions about how best to structure your family business in Central Florida, allow or experienced small business attorneys to help.
Contact the Central Florida business attorneys at The Chidolue Law Firm, serving Orlando and Lake Mary, by calling (407) 995-6567 or email us.