When you are starting a business in Florida you can choose between different legal structures for your business. Each structure offers different advantages and drawbacks. When you are starting a business with other people, you may want to consider forming a partnership.
Florida offers four different types of traditional registered partnerships for business owners within the state. Because the different types of partnerships may involve different tax choices and different exposure for liability, consider each of your options before settling on a specific partnership type.
Types of Partnerships: Liability & Tax Considerations
Regardless of the type of partnership you form in Florida, you will be required to file an annual report for the business with the IRS. This report provides the IRS with an accounting of the profits and losses of the business, which will be verified against the income reported by each of the partners on their personal tax returns.
Note: Florida does not collect income tax from its residents. As a result, income generated by local partnerships is simply reported on the partners’ federal tax returns.
Personal liability is the other important topic to consider when forming a business. Personal liability is a legal term that explains how closely your personal debts and assets are tied up with your business. If you have no personal liability, then none of your business’s debts are counted against your personal assets, in effect the business is totally separate from you. This means if the business takes on a debt, such as a loan or lawsuit, then those creditors can’t seize your home, cash, or other personal assets to settle the debt. While no legal structure gives you complete liability protection, some grant more options than others.
The types of partnerships offered in Florida are compared below, with information highlighting the differences in liability and tax considerations.
General Partnership (GP)
General partnerships are the most informal partnership arrangement available in Florida. Under this structure, each partner is personally liable for the debts of business and the actions of the other partners. This means there is no separation between business and personal assets and the partners are all personally responsible for the company’s debts.
Florida does not collect income tax from its residents. As a result, income generated by general partnerships in the state is simply reported on the partners’ federal tax returns.
Limited Partnership (LP)
In order to form an limited partnership, you must have at least one general partner and one limited partner. LPs limit the personal liability of the limited partners to their investment in the company but do not allow the limited partners to control the day to day operations of the business. General partners control the day to day operations of the business and are also fully liable for the partnership’s debts.
An LP is helpful when a general partnership wants to attract outside investors because the limited partners can freely invest in the company without worrying about being responsible for the company’s overall debt. They will only be responsible for the amount they’ve invested in either cash, equipment, or other goods.
As mentioned above, because Florida doesn’t tax income, all income generated by the partnership will be reported on the partners’ personal tax returns.
Limited Liability Limited Partnership (LLP)
In a limited liability limited partnership each partner is only responsible for his or her personal actions from a liability standpoint. These partnerships are commonly used in professions where liability is a common issue. Doctors, lawyers, accountants, and similar professionals commonly form LLPs.
Like all of the other partnerships previously mentioned, LLPs are also pass-through entities for federal tax purposes.
Limited Liability Limited Partnership (LLLP)
Like LPs, limited liability limited partnerships allow different roles for general partners and limited partners. They also provide protection from personal liability for the actions of other partners. As a result they are a preferred partnership structure in Florida.
LLLPs are treated like GPs and LPs for tax purposes. This means that all partners are required to report their share of the income generated or losses sustained by the partnership on their personal tax returns.
Limited Liability Company
If you need additional taxation choices or greater protection from personal liability you may want to consider forming a limited liability company (LLC). The LLC business structure combines many of the advantages of partnerships while offering greater flexibility in tax structures. On the downside, they often require more effort to maintain than a partnership but even then, they are known for their simplicity.
How to Form a Partnership in Florida
Now that you’ve weighed your choices, it is time to get started with the formal requirements of getting your new Florida partnership up and running. Here are the basic steps you will need to take.
Step 1: Select a business name
Once you’ve decided to operate a business in Florida, you need to decide on a name. You can check to see if the name you want is available by searching the active listings for general partnerships and LLPs.
Any partnership operating as an LLC, LP, LLP, LLLP has to include the appropriate abbreviation at the end of their business name. You will want to include the appropriate designation in your name when you register it with the state.
Step 2: Register business name
Once you’ve found a name that you want to use, and that is available for use, you will need to register your business name with the Florida Department of State, Division of Corporations. Once registered, other businesses in Florida can not use your business name in their official paperwork.
Step 3: Complete required paperwork:
General Partnerships (GP) – In Florida, general partnerships are required to register with the Florida Division of Corporations, Registration Section by filing a Partnership Registration Statement.
Limited Partnerships (LP) and Limited Liability Limited Partnerships (LLLP) – Limited partnerships and limited liability limited partnerships must file a Certificate of Limited Partnership For Florida Limited Partnership or Limited Liability Limited Partnership with the Florida Division of Corporations, Registration Section in order to form an LP or an LLLP.
Limited Liability Partnerships (LLP) – In Florida, domestic or foreign businesses must file a Statement of Qualification For Florida or Foreign Limited Liability Partnership with the Florida Division of Corporations, Registration Section.
Limited Liability Companies (LLC) – In Florida, in order to form an LLC you must file the Articles of Organization for Florida Limited Liability Company with the Florida Division of Corporations, Registration Section.
Step 4: Determine if you need an EIN, additional licenses or tax IDs
Partnerships with employees should obtain an Employer Identification Number (EIN) from the IRS. Banks commonly require an EIN before they will open a business bank account, so getting an EIN is usually a good idea even if you aren’t going to be hiring employees.
Additionally, some businesses require additional licenses from the state in order to operate. Further taxes may be required as well, depending on your business.
Step 5: Get your day to day business affairs in order
Once you’ve filed the appropriate paperwork to get your business up and running, you will want to take some time to handle a couple of business matters before opening your doors. At a minimum you will need to:
- Open a separate bank account for your business
- Open a line of credit for your business, such as a business credit card
- Get proper insurance for your company
- Create a company website
Ready to start a partnership? LegalZoom will help you choose which one may be right for you. We can also file the paperwork to form your business, help you find a registered agent, and get you in touch with an attorney or tax professional.