Depending on whether you own a business alone or with others, you have the choice of running it as a sole proprietorship, partnership, limited liability company, or corporation. If you are starting a business in Atlanta, you may want to consider organizing it as a limited liability company (LLC). This structure is now the most popular type of business entity in Georgia and throughout the United States due to its many benefits.
If you have questions about vehicles for chartering your business, an Atlanta limited liability company lawyer is available to answer them. The skilled attorneys at Sparks Law have significant experience with all business structures and can help you choose the right one for your needs.
A Limited Liability Company mimics corporations and partnerships. It affords its members protection from responsibility for the company’s debts and liability if lawsuits are filed against the company.
When formed, LLC members contribute capital, which can also be in the form of property or services according to the Georgia Code Section 14-11-401. The capital value determines each member’s percentage ownership in the company. LLCs are flexible because they do not require a Board of Directors like corporations, nor do they have to name officers (although they can).
Operating agreements govern LLCs, while corporations adopt bylaws. Like a partnership, an LLC is taxed as a pass-through entity, although members can elect to be taxed like a corporation. When drafting an operating agreement for an LLC in Atlanta, members should work with a skilled attorney to ensure the document clearly allocates duties and benefits.
By default, an LLC’s tax status is a pass-through entity. If only one member owns the LLC, the IRS labels it a disregarded entity for tax purposes. In that scenario, the sole owner would use Schedule C on a personal tax return to report the company’s income and losses. Thus, the LLC income is taxed at the rate individuals are taxed.
If more than one member owns the company, the LLC tax status mimics a partnership. Each year, members receive a Form K-1 which reports the member’s distributed share of income and loss. Like a partnership, the LLC reports all income and loss on IRS Form 1065 but does not pay taxes from this filing. Members use the Form K-1 information to document their distributed shares on individual income tax returns, thus avoiding the double taxation that corporations are subject to.
By submitting IRS Form 8832, one or multiple members can elect to be taxed like a corporation instead of a partnership. Corporations are taxed on their income, and any distributions to shareholders are also taxed on their personal returns. Corporate tax status is further divided into taxation like a C corporation or S corporation.
LLCs that elect C corporation tax status are taxed before any dividends or distributions to members. Afterward, the dividends or distributions are taxed as income by the members who receive them.
If members decide to be taxed like an S corporation, the LLC’s income and loss follow the pass-through strategy. This could be a favorable tax status for an entity that is simpler than a corporation. A nearby attorney could assess a limited liability company and help determine the most beneficial tax status.
Business owners who envision their companies trading on a U.S. stock exchange or who plan to raise capital through equity instead of debt should not choose the limited liability company structure. Unlike corporations, LLCs cannot sell stock to a limitless number of investors to raise money. Additionally, only corporations trade on U.S. stock exchanges.
Choosing the right vehicle to operate your business is one of the most significant decisions you will make early in the formation process. There are advantages to all entities, so it is critical to consult a knowledgeable attorney on which structure best suits your particular needs. If you choose to charter an LLC, you will also need to decide how you want to be taxed.
Schedule a consultation with an Atlanta limited liability company lawyer to discuss if this option is a good fit for you. The legal team at Sparks Law could explain the ins and outs of each tax structures and help draft your operating agreement. Contact us today to get started.
