Choosing a Legal Structure

Sole proprietorships are easy to set up and easy to disband. Profits are taxed at the owner's individual federal tax rate, with the amount reported on Schedule C or Schedule CZ. Sole proprietorships do not file Florida corporate income tax returns, but owners have unlimited personal liability for any debts or other obligations the business incurs. In Florida, that liability is limited by the state's homestead laws.

Partnerships can be formed as easily as sole proprietorships. These unincorporated businesses allow two or more people to share liability and provide capital. Business income is reported on partners' individual tax returns. Limited partnerships must file with the Florida Department of State, Division of Corporations and pay $35 to designate a registered agent and $965 in filing fees for new partnerships; $500 annually.

Limited liability companies, or LLCs as they are known, are a hybrid form of business that combines elements of partnerships and corporations. In Florida, LLCs may elect whether to be taxed as partnerships or corporations. On the federal level, LLCs with only one member are considered to be sole proprietors unless they elect to be classified as a corporation by filing IRS Form 8832. LLCs with more than one member file a partnership return on IRS Form 1065 unless they elect to be classified as a corporation. LLCs must file with the Florida Department of State, Division of Corporations ($125 for new LLCs; $50 annually).

Corporations are separate legal entities that must be incorporated with the Florida Department of State, Division of Corporations.

The two types of corporations are the C-Corporation and the S-Corporation. With a C-Corporation, the corporation rather than individuals pays taxes and assumes liabilities. Florida's corporate tax is 5.5%.

An S-Corporation allows up to 75 shareholders to share income and expenses and to report them on their individual income tax returns.