Corporation or Limited Liability Company?. New investors entering the North American market usually choose between two different formulas for incorporating their companies:

  • the corporation
  • Limited responsibility society.

Next, we will make a brief analysis of both formulas vis-a-vis the convenience of Florida entrepreneurs.
The corporation
The Corporation, or “C” Corporation, bears a close resemblance to the corporations that we know in Latin American countries. It is a different legal entity in its nature from the owners of the corporation, its “shareholders”.
The validity of a corporation in Florida begins with its registration with the Department of State, Division of Corporations (
The articles of incorporation record the amount contributed by the shareholders to acquire the shares issued by the corporation, the composition of the first board of directors elected in the shareholders' meeting and the other statutory provisions that will govern the operation of the entity.
In corporations, the civil liability of the shareholders is limited by the amount of capital contributed by each of them and does not extend to their personal assets and possessions. The figure of the corporation applies to companies of any size, from small businesses to the giant firms that compete on Wall Street.
In terms of taxes, the corporation must declare its own income tax in a separate declaration from that of the individual shareholders. The shareholders, therefore, are subject to a double taxation process since the corporation pays its tax on the net income obtained and the shareholders, in turn, are taxed on the dividends received from the corporation.
To prevent this double taxation scheme, the tax code stipulates a special incentive under the figure of the “S” Corporation. To qualify for the tax benefit, the “S” Corporation must issue a single class of shares, limit the number of shareholders to 100 and not grant ownership of the shares to foreigners who are not US residents.
Once registered with the Florida Department of State, the “S” Corporation will not be required to pay federal taxes on its net income because this income goes directly to the shareholders' equity. Each shareholder, for his part, must declare in his personal tax return the income received from the “S” Corporation.
The Limited Liability Company
The limited liability company or LLC, is a formula widely used by small and medium-sized entrepreneurs for the benefits it provides in tax matters. Owners of LLCs are called "members" and their contributions rather than "shares" are called "shares."
As in corporations, in the LLC the patrimonial risk of the "members" is limited against civil actions of third parties against the company. In other words, the creditors of the company cannot go after the assets of the members to satisfy their claims.
LLCs generally do not pay taxes at the company level since the net income goes directly to the members and is reported on personal tax returns.
Another important feature is that the management structure of the LLC depends on the provisions of the members and is not subject to the formalities of corporations. The company does not have a board of directors and can be managed by the members themselves or by managers appointed by the members.
Depending on the initial capital requirements and growth expectations, the entrepreneur may choose between setting up a Corporation or an LLC.
The corporation, being constituted by shares, offers greater flexibility for the transfer and assignment of existing shares and for the issuance of new titles. When it comes to increasing the financial capacity of the company, corporations can go to investment funds, "angel" companies or "incubators" and exchange shares for capital funds. It is also possible that a company at its mature level can register its shares to be listed on the stock exchanges.
The LLC, on the other hand, represents an excellent alternative for medium and small firms that, due to the size of the market or their managerial nature, have growth limitations. The LLC, in addition to requiring fewer formalities for registration, allows for a flexible management structure, suitable for family-owned businesses.
The hybrid solution, the “S” Corporation, would seem to offer the entrepreneur the “best of both worlds”. However, as it is a tax incentive program, the administrative management of the “S” Corporation is subject to greater formalities than those of the “C” Corporation itself.
The common denominator of the legal forms evaluated is that they offer protection of the personal assets of the shareholders or members against the claims of third parties. It will depend, therefore, on the particular circumstance of each businessman in relation to his investment amount and his development plans, the type of legal entity that he must choose.
Author: Alfred Gonzalez      I

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