Hopefully sooner, rather than later, you will decide which legal organization form to choose for your small business. Some helpful considerations are: ease and cost of formation, administration and record keeping, taxes, and inherent liability risk. Most businesses are legally organized in one of the following forms:

Sole Proprietorship

A sole proprietorship is a business headed by an individual. The owner is the business; the owner has all of the profits and losses of the business. The owner also has all the control and all the liability from the business operations. The owner through his or her personal income tax return pays business taxes, and remains personally liable for all business debts. Remember that in Georgia you need to register with your county.

Partnership

A partnership is a business that operates like a sole proprietorship, but instead of having only one owner, several individuals are running it. The partners share the profits/losses; have control and liability for business operations. Partnership taxes are paid by the partners on their personal tax returns, in proportion to their share of ownership. Partners may be equal, but there could also be an agreement about a different distribution of power/responsibilities. A written partnership agreement is not required but highly recommended.

Limited Partnership 

If a partnership has both general partners and limited partners, it is sometimes termed a "limited partnership." A limited partnership is an entity distinct from its partners. As with a partnership, the general partners deal with the day-to-day operations of the partnership and they have liability for debts and for actions of the partners. Limited partners do not participate in day-to-day operations of the partnership and they bear little to no liability for debts or actions of the partnership.

Limited Liability Partnership (LLP)

Limited Liability Partnerships (LLPs) are formed with general partners, but all general partners are shielded from liability for the acts of other partners or employees. The LLP is similar to a LLC but the LLP operates under partnership rules.

Corporation (or C-Corporation)

A corporation operates as a separate legal entity apart from its owners. Registration with the state is a key requirement. The  C-Corporation's Board of Directors is responsible for making operational decisions. Owners are protected from liabilities of the corporation, and the corporation pays corporate income taxes.

S-Corporation (or Subchapter-S Corporation)

A small business corporation with a lower number of shareholders may elect to be classified as an S-Corporation.  This allows the liability protection of corporate status, but taxation at individual rates. In order to create a S-Corporation in Georgia, certain steps need to be taken in addition to those required to form a C-Corporation.

Professional Cooperation (PC)

A professional corporation is a specific type of corporation for professionals, such as attorneys, doctors, architects, and accountants. In recent years, there has been a shift to form an LLC rather than a PC.

Limited Liability Company (LLC)

One or more business people or entities, as owners, whose liability is limited to their investment, may form a limited liability company (LLC) . The owners, called "members," file Articles of Organization and set out an Operating Agreement. An LLC is a pass-through entity, because the profits and losses are passed on to the Members depending on their share of membership. An LLC is often used in place of partnerships to limit liability, while having the option of being taxed through the personal tax returns of the members. Like a corporation, LLCs need to be registered with the State to be in effect

The forgoing list is only a brief and cursory introduction to the many possibilities of organizational structure. Please contact us to discuss the best organization form for your specific business in order to to protect your hard work, dedication, and assets.

Next week, right on time for tax season, we will share some information on taxes and your responsibilities as a business owner.