There are many moving parts in the process of creating a business, including selecting and forming the type of legal entity most suited to the organization’s and owners’ unique needs. If you are thinking about starting a company, you should consult with a Georgia business formation lawyer. An experienced attorney could assess your goals and advise you on the type of legal entity you should form based on the vision you have for your organization.
A lawyer could also counsel you on the potential taxation and liability ramifications associated with each type of legal entity and file the necessary paperwork with the state department on your behalf. Get in touch with a Georgia business lawyer to begin planning the creation of your company.
When forming a business, there are many types of legal entities to choose from depending on the number of partners involved, the industry, and the type of management and control structure desired. Georgia law permits individuals to form different types of legal entities, including:
A business formation attorney who is well-versed in the laws governing these legal entities could help owners understand the benefits and disadvantages of forming a particular entity before deciding how to form their organization.
There are two key factors to consider when forming a company—tax consequences and personal liability. Certain types of legal entities provide better tax advantages to owners, while others better insulate owners from being personally liable for any debts accrued by the business.
Sole proprietorships, general and limited partnerships, LLCs, and S corporations are pass-through taxation entities, meaning the owners pay taxes and the companies do not pay any taxes. Specifically, taxable profits, losses, or deductions realized by the business will be “passed through” to each partner to claim on their individual tax returns. Forming this type of entity often results in favorable tax breaks for business owners.
Other entities, such as C corporations, are subject to double taxation, meaning the business pays taxes on profits, and the owners must also pay taxes on their tax returns for the profits or dividends they receive from the (already-taxed) C Corporation. Depending on the amount of profits generated, this type of taxation may benefit owners who do not want to claim profits as individual income. So, for example, if you have a business that prefers to not distribute profits to its owners but rather reinvest a great deal of revenue back into the company, a C Corporation may be the best option, since individuals would not be taxed on those reinvested profits. The C Corporation would likely still be taxed on the profits, but typical C Corporation tax rates are less than individual tax rates, and the reinvested profits may be deductible.
Although forming sole proprietorships and general partnerships could result in favorable tax treatment, they do not insulate owners from being personally responsible for paying debts owed by the business, or really anything that the business is liable for. What’s worse, there are outdated laws on the books for general partnerships, whereby you could be held accountable for your business partner’s actions, even if you had nothing to do with those actions. Limited partnerships typically provide limited partners with insulation from being responsible for the company’s debts and liabilities. The general partners, however, will still be personally liable for the business’ debts.
However, C Corporations, S Corporations, and LLCs are usually the best way to go, because they provide owners with the most protection from being personally liable for an organization’s debts and liabilities. Owners should talk to a lawyer about their business objectives before deciding which type of legal entity to form.
Under Title 14 of the Official Georgia Code Annotated, business owners must draft and file legal documents with Georgia’s Secretary of State to create corporations and limited partnerships. If owners fail to properly execute and file the documents necessary to establish a specific entity, they may not be able to enjoy the advantages associated with forming that legal entity. An attorney who focuses on business formation could help ensure owners properly establish their desired entity by drafting and filing the required documents on their behalf.
If you are considering starting a company, an attorney could advise you on the type of entity to form, explain the benefits and consequences of creating a specific entity, and file the required legal paperwork on your behalf. You do not have to go through this process alone. Contact a Georgia business formation lawyer today.