ARTICLE
WHY THE SOLE PROPRIETOR
IN THE FLORIDA CONSTRUCTION INDUSTRY
MIGHT FORM A CORPORATION:
TO CONTINUE TO ELECT
WORKERS COMP INSURANCE EXEMPTION

 Copyright 2003 by James W. Martin. All rights reserved.
 Published in The Florida Bar News, Feb 1, 2004

A stock certificate, minutes electing officers, articles of incorporation, and other legal forms are being signed by construction contractors all over Florida.  The Florida Division of Workers' Compensation sent a notice to 130,000 individuals in the construction industry informing them of a new law taking effect on January 1, 2004.  The law allows only officers of a corporation or limited liability company (LLC) to elect to be exempt from workers' compensation laws in Florida.  The notice stated that sole proprietors in the construction industry who had elected to be exempt from workers comp laws would lose their exemption unless they incorporate and file an application for re-issuance of their exemption. Since most contractors do not know how to form a corporation, prepare minutes, elect officers, issue stock certificates, and draft legal forms, it is important that they seek legal advice if they want to remain exempt from workers' comp.

For legal assistance in forming a Florida corporation from James W. Martin, P.A., please complete the Request Lawyer Form by clicking here and then fax it to (727) 823-3479 with a copy of your driver's license, occupational license, contractor's license, and existing workers' comp exemption.

Benefit; Premium.  While the worker's comp laws are beneficial to employees since they provide medical benefits and disability income payments if employees are injured on the job, the premiums for workers compensation insurance in the construction industry have become so high that many sole proprietors are unable to pay them.  For those sole proprietors in the construction industry who choose to waive the benefits of worker's comp, it appears that forming a corporation (or LLC) is a way to stay in business without obtaining workers comp insurance.

Subcontractors.  Of course, this assumes that the sole proprietor is the only employee of the new entity.  If there are other employees, or if there are other independent contractors who are sole proprietors or partners, then the contractor probably needs to obtain workers comp insurance coverage on them unless they also form a new entity.  Thus, the sole proprietor contractor who uses others as subcontractors might need to form his or her own corporation and require that the subs form their own corporations in order to avoid having to obtain workers comp insurance coverage on them.

Chain Reaction.  Thus, the new state law has created a chain reaction that requires all sole proprietors in the construction industry to form a corporation or LLC in order to continue to be exempt from workers' comp.

Deadline.  The state notice suggested incorporating and filing the exemption re-issuance application by November 30, 2003, but it is likely that the state will accept filings after that date and before January 1, 2004, due to the fact that the law does not take effect until 2004.  Sole proprietors in the construction industry, such as carpenters, installers, plumbers, cabinetmakers, etc., should seek legal advice and take the time to set up their new entities in a thoughtful, legal and logical manner, yet in as simple a structure as possible.

Florida Corporation or LLC.  In Florida, it is possible for one person to be the sole incorporator, director, and officer of the corporation.  A corporation rather than an LLC is usually preferred. A corporation must file a separate tax return, unlike a single-member LLC, but corporate officers have long been allowed to file an exemption from workers compensation, whereas members of an LLC only recently (October 2003) became allowed to file an exemption, so the corporate entity will usually be preferred over a limited liability company.

Articles, Bylaws, Minutes and Stock Certificate.  As part of the incorporation process, the contractor's lawyer should prepare articles of incorporation, bylaws, minutes of organizational meeting, stock certificates and minute book.  The lawyer can also assist in filing the renewal application for worker's comp exemption.

Licenses and Insurance.  When the corporation is formed, the contractor must obtain an occupational license in the name of the corporation.  The contractor must also obtain revised licenses and insurance to show the corporation's name instead of the individual contractor's name.

Accountant.  The contractor should also engage an accountant to assist in obtaining an IRS tax ID number for the corporation, apply for S election, set up corporate accounting books, set up corporate bank accounts, prepare tax returns, etc.

Workers' Compensation Exemption Renewal.  After the corporation is formed, the contractor must file a renewed application for exemption from workers' comp along with copies of the contractor's stock certificate and occupational license.

Annual Report and Annual Minutes.  Once formed, the corporation must file an annual report (UBR) with the Florida Department of State with an annual filing fee of $150 and must hold at least one meeting a year, called the annual meeting.  The corporation may be dissolved or disregarded if the contractor fails to do these two things every year.

Services Provided by This Law Office.  James W. Martin, P.A. prepares simple, streamlined incorporation documents, including articles of incorporation, bylaws, minutes, stock certificate, and minute book, for sole proprietors who elect to continue their workers' comp exemption by  forming a Florida corporation and filing the renewal application for exemption from workman's comp.   The contractor will be responsible for obtaining and paying for licenses, liability insurance, etc., in the corporate name.

James W. Martin, P.A. also prepares minutes of annual meetings for sole proprietors who have incorporated to maintain their workers comp exemption.  The contractor will be responsible for paying the annual Uniform Business Report fee of $150 and all other costs of being incorporated.

To seek legal assistance in forming a Florida corporation from James W. Martin, P.A., please complete the Request Lawyer Form by clicking here and then fax it to (727) 823-3479 with a copy of your driver's license, occupational license, contractor's license, and existing workers' comp exemption.

Click here for a copy of the 9/03 state notice (PDF).

For the Florida workers' compensation law definitions of construction industry and employees, click here (PDF)

Click here for link to Florida Division of Workers' Comp

Click here for Artists in the Construction Industry: Workers Comp Coverage v. 10% Corporate Officer Shareholder Exemption (PDF)

The contractor might know workers' compensation by the following additional names: workers' comp, worker's compensation, worker's comp, workers compensation, workers comp, worker compensation, worker comp, workman's compensation, workman's comp, workmans compensation, workmans comp, workmen's compensation, workmens comp, workmen compensation, and workmen comp.

Last updated: 12/17/03