The first legal decision a new business owner must make is what type of legal entity the business should be. Available choices include:
At Mark A. Johnson, PC, we can guide you throughout the business formation process and make sure you choose the entity that best meets your business needs — both now and in the future as your company grows.
Forming a sole proprietorship is the simplest way to start a business. It means that you are in business as an individual with no separation between you and the business. You might give your business your own name, such as Mary Jones Bakery. Alternatively, you could make up a fictitious name, such as Hometown Bakery, and file a doing business as statement with the municipality to operate your business under that name. While this is the most inexpensive way to start a business, keep in mind that a sole proprietor is fully responsible, personally, for the liabilities and debts of the business.
At the other end of the spectrum of legal business entities is a corporation, which shields its owners (called stockholders or shareholders) from exposure to the liabilities and debts of the business. The shield is not absolute, as creditors can seek to hold owners responsible in a legal action to pierce the corporate veil, but no other form of business entity provides more protection to the owners than forming a corporation.
Another major reason to incorporate in Georgia is that incorporation provides potential tax advantages, such as deductions for business expenses that would be harder to justify for other types of business entities. As the formation and ongoing operations of corporations must comply with various state and federal regulations, owners are well advised to seek legal advice from Mark A. Johnson to form the corporation and to draft the necessary articles of incorporation and Georgia bylaws.
When two or more individuals start up a business, they can choose to operate the business as a partnership. The benefit of a partnership is that it is not considered a separate entity for tax-paying purposes. A partnership must file a tax return, but the income and expenses transfer to the owners' individual tax returns, which may provide the owners with favorable tax treatment. While this type of business entity is relatively simple, it has risks. One or more of the partners is named as a general partner and the general partner(s) can be held individually responsible for the liabilities and debts of the business. This is true even if the general partner has a minority interest in the business.
Similar to a general partnership, a joint venture is formed for conducting business for a specific purpose during a limited period of time. For example, two existing businesses may form a joint venture for the purpose of pursuing a related business venture that neither could afford on its own.
Forming a limited partnership can ameliorate some of the risk involved in a general partnership. A limited partnership must have at least one general partner, but may have many limited partners. The limited partners are protected from responsibility for liabilities and debts of the business that exceed the amounts they invested in the company. However, in return for this protection, they are restricted to a passive role in the ongoing operation of the business.
A corporation is subject to federal tax under subchapter C of the federal internal revenue code. However, in certain cases, a corporation may elect to be subject to subchapter S (hence the name S corporation). Under subchapter S, the corporation is taxed as though it were a partnership. Thus, the profit or loss of the corporation is passed through to the owners' tax returns, which may provide tax advantages to its owners.
A limited liability company, also known as an LLC, has many of the benefits of a corporation and of a partnership. Like a corporation, an LLC shields its owners from personal responsibility for the liabilities and debts of the business. Like a partnership, it provides certain tax advantages to its owners. And unlike a limited partnership where the limited partners are prohibited from active involvement in day-to-day operations, the owners of an LLC are not thus restricted.
Since an LLC is not a corporation, its owners are not shareholders and it does not have officers or directors. Instead, the owners are called members, and those who make the day-to-day decisions are known as the managing members.
Business consultants in Atlanta strongly suggest that owners desiring to form an LLC seek legal advice from a Marietta business formation attorney to create the LLC and to draft the articles of organization and operating agreement.
Another business entity, such as a closely held corporation or a not-for-profit business, may be better suited for you. Contact Mark Johnson to discuss your specific situation.
For an initial consultation to discuss Georgia incorporation or other Georgia business formation with a business formation lawyer serving the Atlanta area, please call Mark A. Johnson PC or contact us online.