Are you contemplating the next big step for your business venture in Florida? Incorporating as an S corporation might be the game-changer you’re looking for. 

Beyond the allure of limited liability and corporate structure, S corporations in Florida offer a unique blend of tax advantages and operational flexibility. 

By choosing this route, you’re positioning your business for potential tax savings and aligning with a structure that resonates with countless successful entrepreneurs. 

Explore why an S corporation could be the optimal choice for your Florida business.

What is an S corporation?

According to the IRS:

“S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.”

Simply put, a Florida S corporation is simply a standard corporation that becomes an S corporation when its shareholders elect special tax status with the Internal Revenue Service (IRS) by filing an IRS Form 2553 signed by all the shareholders (after filing its official documents with the State).

Why form a Florida S corporation?

Protection of shareholders’ personal assets is one of the major reasons Florida business owners choose to incorporate.

Like a corporation, an S corporation in Florida is seen as its own separate entity by the law. This is similar to how an individual person is recognized. The people who own parts of the corporation are called “shareholders.” 

The best part for these shareholders is that their personal belongings and money are typically safe if the corporation faces financial issues or legal troubles. They aren’t directly held accountable for the corporation’s debts or legal problems.

The shareholders’ risk is typically limited to the amount they invested. 

So, if the corporation runs out of money or goes under, shareholders don’t have to worry about its debts. 

If someone takes legal action against the corporation and wins, the corporation might have to use its assets to pay. But with an S corporation, there’s an extra safety layer. 

Even if the corporation doesn’t have enough assets to pay, the personal belongings of shareholders—like their homes or cars—are safe.

However, there are some exceptions to shareholders’ limited liability. If the corporation does something wrong, like acting recklessly or committing fraud, then shareholders might have to pay more than what they invested.

Florida S corporation taxation

An S corporation in Florida differs from a C corporation because it doesn’t pay federal income tax. Even if there’s more than one shareholder, the S corporation will file tax returns, but the real twist is how the taxes are handled. 

Each shareholder has to report their part of the corporation’s income or loss on their personal tax returns. This is similar to how things work with sole proprietorships, partnerships, and Limited Liability Companies (LLCs).

To qualify as an S corporation in Florida, you must file a specific form with the IRS, Form 2553. Some states also ask for an additional form to be recognized as an S corporation, but this is rare. Only five states – Arkansas, New Jersey, New York, Ohio, and Wisconsin – have this extra step.

If this sounds a bit complicated, don’t worry! MaxFilings is here to help. We’ll get the IRS Form 2553 ready for you and send it your way with clear instructions on how to fill it out and where to send it.

Key considerations for S corp formation

Overview

• Official documents must be filed with the state to form a Florida corporation, and state filing fees must be paid.
• Form 2553, electing special tax status, must be filed with the IRS.
• A Florida S corporation is considered, by law, to be an individual entity separate from its owners (shareholders).
• There can be some limitations regarding the kind of business Florida S corporations are allowed to conduct.
• You must hold and keep minutes documenting meetings of the stockholders and board of directors.
• Florida S corporations cannot have more than 100 shareholders; shareholders cannot be other corporations, Limited Liability Companies (LLCs), partnerships, certain trusts, or non-resident aliens.

Defining shareholder liability in S corporations

• Florida S corporation shareholders’ liability is typically limited to their invested amount.
• Shareholders are generally not held liable for legal judgments, corporate debts, or obligations.
• Incorporation offers vital asset protection for Florida State business owners.
• Exceptions exist, leading to potential shareholder liability in specific cases.

Raising capital: Funding and ownership of a Florida S corp

• Florida S corporations can raise capital more easily through stock issuance and sales.
• The process may involve compliance with state and federal securities laws.
• Ownership can be transferred by selling corporate stock.
• Florida S corporations typically have a single class of stock, though voting rights can differ.

Tax advantages and reporting for S corporations

• Florida S corporations face fewer audits than sole proprietorships and partnerships.
• Pass-through taxation in S corporations prevents double taxation for shareholders.
• S corporations submit informational tax returns and are exempt from corporate income tax.
• Shareholders report S corporation income and losses on personal tax returns, utilizing losses to offset other income.

Ownership and employee benefits in S corporations

• Major shareholders can have limitations on certain fringe benefits.
• Owners working in the business are employees and are therefore eligible for certain fringe benefits such as group insurance plans, retirement and profit-sharing plans, and tax-favored stock option and bonus plans.
• Offering stock options and stock bonuses can make corporations more appealing to potential employees.
• Unlike other business types, corporations have perpetual existence and do not end with the shareholder owner’s death.

Advantages for public perception on an S corp

Corporations often come across as more robust and well-established than sole proprietorships and partnerships to the general public. This perception isn’t just about size; it’s also about credibility and trustworthiness. 

Incorporating as an S corporation can elevate a business’s standing, suggesting a commitment to longevity and professionalism. Such a designation can make a company more appealing to potential clients, investors, and partners. 

Furthermore, many see S corporations as more reliable, reducing risks associated with business dealings and investments.

Choose MaxFilings for affordable business incorporation

Starting your Florida S corporation doesn’t have to be expensive. With MaxFilings, you get affordability, flexibility, guidance, and peace of mind. 

Our Basic package is $0 +  mandatory Florida state fee, with no hidden charges. Plus, you can save your progress online, get guidance at every step, and enjoy comprehensive services designed for a smooth incorporation process. Start your journey with MaxFilings today!

However, if you’re set on DIY incorporation, these are the basic steps:

1. Choose a name: The name of your S corporation must include “Corporation,” “Incorporated,” “Company,” or their abbreviations. It must be distinguishable from other entities registered in Florida.
   
   You can check for name availability on the Florida Divisions of Corporation website.
2. Appoint a registered agent: Designate a registered agent in Florida. This agent will receive all legal documents for the corporation.
3. File Articles of Incorporation: Submit the Articles of Incorporation to the Florida Department of State. There will be a filing fee associated with this.
4. Obtain an EIN: Apply for an Employer Identification Number (EIN) from the IRS. This is essential for tax purposes.
5. File IRS Form 2553: Submit Form 2553 to the IRS to elect S corporation status. This must be done within two months and 15 days of the beginning of the tax year the election is to take effect.
6. Set up corporate records: Create a corporate records book to store important documents, including the articles of incorporation, bylaws, and minutes of meetings.
7. Draft corporate bylaws: Although not submitted to the state, bylaws outline the corporation’s internal operations.
8. Conduct initial meetings: Hold the first meetings for directors and shareholders. Document these meetings and store the minutes in your corporate records.
9. Comply with Florida business licenses and permits: Obtain necessary licenses and permits depending on the nature of your business.
10. Maintain ongoing requirements: Ensure you meet annual report filing requirements, maintain your registered agent, and adhere to other compliance obligations.
11. Stay updated on renewals: Regularly review and renew business licenses, permits, and filings as required.

Key takeaways: Advantages of incorporating as an S corporation

1. Pass-through taxation: Profits and losses of the S corporation pass through to the shareholders’ personal tax returns, avoiding double taxation. This means the corporation does not pay federal income taxes; the shareholders report their share of the profits and losses on their individual tax returns.
2. Limited liability protection: Shareholders enjoy limited liability protection, meaning their personal assets (e.g., home, car, personal bank accounts) are usually protected from the corporation’s debts and legal liabilities.
3. Perceived credibility: Incorporating as an S corporation can enhance the business’s credibility and professional image among clients, investors, and financial institutions.
4. Easy transfer of ownership: Ownership of an S corporation can be easily transferred through stock sale without affecting the corporation’s existence or operation.
5. Unlimited life: The S corporation continues to exist even if the owner or a shareholder dies or leaves the business, ensuring business continuity.
6. Self-employment tax savings: Only the salaries paid to S corporation shareholders who are employees are subject to self-employment taxes (Social Security and Medicare), potentially resulting in tax savings.
7. Flexibility in allocating income and losses: S corporations can allocate income and losses to shareholders in a manner different from their ownership percentages, provided there is a valid business reason to do so.
8. Ability to raise capital: S corporations can issue and sell stock to raise additional capital, making securing funding for business growth easier.
9. Single class of stock: While S corporations can have only one class of stock, there is no limit on the number of shareholders as long as it does not exceed 100.
10. Favorable state tax treatment: Florida does not impose a state income tax on individuals, making it financially advantageous for S corporation shareholders.

Feel free to call us with any questions at all about incorporating as an S corporation in Florida or any other state.