Choice of entity refers to choosing the legal form for operating your business. A business may be operated as (1) a corporation; (2) a general partnership or limited partnership; (3) a limited liability company (LLC); or (4) a sole proprietorship. Each state has its own laws for the formation, operation, and maintenance of these business entities.

The primary considerations in choosing the best form for operating your business are (1) protecting your personal assets from the liabilities of the company; (2) tax strategies designed to deduct early losses, avoid double taxation, and convert ordinary income into long term capital gain at a lower tax rate; (3) an entity that will be attractive to potential investors and lenders; (4) an entity that allows you to offer equity incentives to employees (stock options); and (5) the cost of forming the entity and properly maintaining it—including filing the required documents with state agencies.

In Florida, the choice of entity for operating a business is an important decision that affects legal liability, taxation, investment attractiveness, employee incentives, and administrative requirements. A corporation provides limited liability protection to its shareholders, but may be subject to double taxation unless it elects S corporation status. General partnerships offer no liability protection, while limited partnerships protect limited partners but not general partners. A limited liability company (LLC) combines liability protection with pass-through taxation, making it a popular choice. Sole proprietorships are the simplest form, with no separation between personal and business assets, thus offering no liability protection. Tax considerations include avoiding double taxation and optimizing for deductions and capital gains. Attractiveness to investors and lenders, as well as the ability to offer equity incentives like stock options, are also key factors. Costs include initial formation fees and ongoing maintenance such as annual reports and fees. Florida statutes provide specific guidelines for the formation, operation, and maintenance of these entities, and it is advisable to consult with an attorney to determine the most suitable entity type for a particular business.