Entrepreneurs should become aware of the various business entity forms which exist within the State of Georgia. The specific type of entity needed for a particular business depends on a wide variety of factors. The below information is for educational purposes only and should be used in conjunction with legal counsel. For a free telephone consultation about your particular business need, please contact Davis Law at 404.901.2500 and 770.922.8500, or send us a message from our website - Contact Davis Law.
The State of Georgia has the following business forms available for entrepreneurs (Please Scroll Down For Each Type):
Sole Proprietorship - Partnerships (General Partnerships) - Limited Liability Companies (LLC) - Corporations - Limited Partnerships - Limited Liability Partnerships - Limited Liability Limited Partnerships
Sole Proprietorship
A Sole Proprietorship is the most primitive form of business creation. The owner of the Sole Proprietorship, termed "Sole Proprietor" may not exceed one (1) individual and typically files a Schedule "C" for Business Income tax purposes.
Typically, the Schedule "C" Form is used whether or not the individual owner, hereinafter termed "Sole Proprietor," files a married or single tax return. However, legal advice should be sought when a Sole Proprietor is married and both spouses are involved in the business.
One Advantage of a Sole Proprietorship is that Sole Proprietorships can be created and dissolved with relative ease. So how is a Sole Proprietorship created?? Not to intentionally over-simplify, but a Sole Proprietorship is created simply by creating a Business Name and acting as a Business would act. For example, Joanna Smith is a licensed State of Georgia Electrician who is currently employed by ABC Electrical Company, Incorporated. Ms. Smith decides to leave her employment at ABC and perform electrical services under the Business Name "JoSmith Electric." Ms. Smith has created Joanna Smith d/b/a (Doing Business As) JoSmith Electric immediately upon naming her business and acting as a business (such as opening a checking account or applying for a business license or performing services).
Another Advantage of a Sole Proprietorship is the relative low expense to maintain the business when compared to other entity forms. There are no Bylaws or Operating Agreements to follow and occasionally modify. And the Georgia Secretary of State does not require Annual Registration (not to be confused with the State of Georgia Occupational Tax collected by the municipality in which your business is located)
Now, the Negative side of a Sole Proprietorship, and it's a BIG NEGATIVE. Sole Proprietors should understand that the Sole Proprietorship Entity Form provides NO Liability Protection to the Sole Proprietor. In others words, in situations of liability, whether by negligence or by contract or other, not only is the Sole Proprietor's Capital Contributions at risk to cover a liability, but ALSO the Personal Assets of the Sole Proprietor are at risk to cover the Sole Proprietorships' liabilities. For this reason, many entrepreneurs choose a Business Entity Form which offers Limited Liability Protection.
Partnerships (General Partnerships)
A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business.
Corporations
A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.
S-Corporations
An S Corporation is a distinct form of entity organized under applicable state law as a corporation but specially applied for with the IRS for tax purposes. For Federal income tax purposes, an S corporation is generally not subject to tax: instead its income, losses, deductions, and credits are passed through to its shareholders in manner similar to a partnership. However, the S corporation itself may be responsible for tax on certain build-in gains and passive investment income.
Limited Liability Company
The State of Georgia has adopted statues which allow the creation of a Limited Liability Company (LLC). A Limited Liability Company offers the limited liability of a Corporation with the tax and cash flow flexibility of a Partnership.
Limited Liability Partnerships
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liablefor another partner's misconduct or negligence.
Limited Liability Limited Partnerships
The limited liability limited partnership (LLLP) is a relatively new modification of the limited partnership, a form of business entity recognized under United States commercial law. An LLLP is a limited partnership and as such consists of one or more general partners and one or more limited partners.
For a free telephone consultation about your particular business entity needs, please contact Davis Law at 404.901.2500 and 770.922.8500, or send us a message from our website - Contact Davis Law.
Other Useful Links:
Georgia Secretary of State - Corporations Division