Plan a Business

Choose a Business Structure

There are several different types of legal structures for you to choose from, each with implications for your taxes, personal liability, partnerships, and registration requirements. The below is not meant to be an exhaustive list of the different types of legal structures—and is also not meant to serve as legal or tax advice—but it can serve as a starting point for your own research. Depending on their needs, many business owners also consult with an attorney.

Some types of legal structures are easier to set up than others. For instance, forming a sole proprietorship does not require you to file any legal documents, while for entities such as corporations, Limited Liability Companies, General Partnerships, Limited Partnerships, and Limited Liability Partnerships, you will need to formally incorporate your company with the State of Georgia.

For more information about selecting your Business Structure visit the Small Business Administration

Sole Proprietorship

• Advantages
  • Easiest and least expensive to set up
  • Full control over all business decisions
  • Minimal legal restrictions or requirements
  • Owns all profits and reaps all benefits
  • Not required to pay unemployment taxes
• Disavantages
  • Personally liable for all business transactions
  • May have difficulty obtaining long-term financing
  • No unemployment benefits if the business fails
  • Limited tax savings

General Partnership

• Advantages
  • Easy to establish
  • Partners share workload and responsibilities
  • Financing is easier to obtain than for a sole proprietorship
  • The partners share all profits and reap all benefits of ownership
• Disavantages
  • May be more expensive to start
  • Partners have unlimited liability for business expenses
  • Each partner is bound by the actions of the other partner
  • Decision-making authority is divided
  • Loss of one partner may dissolve the business
  • Partnership may be difficult to end

Limited Partnership

• Advantages
  • Relatively easy to establish
  • Partners share in start-up expenses
  • Financing is easier to obtain than for a sole proprietorship
  • Partners share all profits and reap all benefits of ownership
• Disadvantages
  • More expensive to set up initially due to the requirement for a written agreement
  • Operating (general) partner has unlimited liability for expenses
  • Loss of one partner may dissolve the business

Limited Liability Partnership (LLP)

• Advantages
  • Tax advantage of flow-through tax treatment for LLP partners
  • Simple for an existing partnership to become an LLP
• Disadvantages
  • A sole owner cannot set up an LLP as a partnership; an LLP must have at least two partners to exist

C (General) Corporation

• Advantages
  • Has a lifespan independent from its owners (stockholders)
  • Fringe benefits costs are tax-deductible
  • Personal assets are protected from business liability
  • Ownership can be transferred through the sale of stock
  • Easy to raise operating capital through the sale of stock
  • Ownership can change without affecting daily management
• Disadvantages
  • Incorporating involves considerable start-up expenses
  • Subject to more District and federal legislation
  • Corporate earnings subject to double taxation
  • Many legal formalities exist when filing corporate status
  • Activities are limited

S Corporation

• Advantages
  • Already exists as a corporation
  • Corporate earnings avoid double-taxation
• Disadvantages
  • Difficult to qualify for IRS requirements

Limited Liability Company (LLC)

• Advantages
  • Profits and losses pass through the company to its owners for tax purposes
  • Personal assets are protected from business liability
  • No limitation on the number or nature of owners
  • Easier to operate than a corporation
  • Not subject to corporate formalities
  • Owners may participate in management of the business
• Disadvantages
  • Legal assistance is needed to properly set up and structure
  • Professionals—such as lawyers, accountants, and doctors—are prohibited from registering as an LLC

Nonprofit

• Advantages
  • Tax exemption
  • Business operation flexibility
• Disadvantages
  • Merger limitations