Most people create a formal business entity for one or more of the following reasons. (No matter your reason, the hardest part is always getting started!)
1. PERSONAL LIABILITY PROTECTION
The best and most well-known reason for creating a business entity is the protection it gives your personal assets. When one operates a business as a sole proprietor or a general partnership, personal liability protection does not exist. This means if the company can’t pay its bills, the owners have to pay – from their savings!
For example, you are a sole proprietor and a creditor of a company gets a judgment against the company for $500,000. If the company only has $100,000 in cash or assets, that judgment creditor can take that $100,000 then look to your assets (including savings, investments, and non-homestead exempt property) to satisfy the remaining $400,000 balance.
You don’t want to see your hard-earned savings taken by a creditor of your company. If you plan to create a company or to expand your company, consider forming an LLC or even an S-corporation to help shield your personal assets.
Always remember to follow any required formalities and to keep you and your company’s finances separate! Like don’t use your company creditor card to pay for your groceries. It could be seen as piercing the “corporate veil” which will jeopardize all the personal liability protection you’ve been working so hard to keep.
2. SHORT-TERM FINANCIAL BENEFITS
Many investors won’t even consider investing in your company unless you create a business plan and establish a business entity. They’re even partial to certain entities. While some investors might provide funds for an LLC start-up, most prefer corporations. More specifically, most want “preferred stock options.” Hence, why so many business owners are creating or converting their companies to a Florida corporation.
3. LONG-TERM FINANCIAL BENEFITS
In the long run, it’s easier to market and sell company that has a legal entity. From the buyer’s standpoint, the more formalities the company follows, the better and more secure the investment.
In Florida, an LLC does not have many formality requirements. You don’t have to keep minutes. You don’t have to have annual meetings. You mostly just have to keep yourself and the company separate so as to not “pierce the corporate veil.”
Even with limited formalities, an LLC isn’t likely to scare buyers away. It still offers strong personal liability protection. However, many buyers still have their steadfast preference for the familiar “corporate structure” that comes with a board of directors, periodic meetings, and a hierarchical management.
4. U.S. RESIDENCY RIGHTS
Many non-U.S. Citizens are creating businesses in order to obtain an investors visa. The E-2 Investor Visa is just one of many investor visas, yet it stands out above all others. It is a 5-year temporary visa that is also a stepping stone to permanent U.S. residency rights. The E-2 Visa allows business owners to build up over time to the minimum investment amount required by the EB5 Visa.
