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How to Choose the Right Business Entity

Your business plan is in place and you’re ready to make it official. Now what? While it may be tempting to use an online service that quickly allows you to “incorporate,” we caution against this. The formation of a new business – and the ideas born with it – is a delicate situation that must be handled carefully and thoughtfully. Sure, it’s understandable to want to keep the momentum going; however, rushing through the entity selection process is not a shortcut you’ll want to take.

From the shareholders and partners involved in your business to the types of funding you can possibly receive down the line, your choice of entity plays a huge role in the overall structure of your business. So it’s important to choose wisely. Keep in mind that entity selection doesn’t happen at the federal level; it’s state-specific and subject to the individual laws where you will be conducting business. In Georgia, the most popular entity is that of the Limited Liability Company (LLC).

The Limited Liability Company (LLC)

The Limited Liability Company is a hybrid entity that allows the business to be taxed as a partnership or a corporation. Perhaps most appealing about an LLC is the fact that it provides the liability protection of a corporation while giving business owners options on how they would like to be taxed. LLCs are comprised of members, not shareholders. So long as corporate formalities specific to the state are observed, individual members will typically be protected from liability.

Benefits of incorporating as an LLC business include:

  • Pass-through taxes: When it comes to federal taxes, an LLC business will usually be treated as a pass-through entity, making a corporate tax return unnecessary. Most LLCs are taxed as partnerships because it’s more beneficial. Owners can report their profit shares and losses on individual tax returns and, in the process, avoid double taxation.
  • Limited personal liability: By definition, an LLC is considered a legal entity separate from the individual members and owners of the business. As such, the owner will not be held personally liable for debts or legal responsibilities of the LLC.
  • Flexible sharing profits: Members of an LLC business have the unique ability to determine how profits will be allocated according to the terms specified in the LLC operating agreement. They are not limited by their proportion of ownership.

Other Types of Popular Business Entities in Georgia

General Partnerships

General Partnerships are relatively easy to form and require few if any, formal procedures to establish. The General Partnership is based on an agreement between two or more partners who agree to perform business under the same name. All partners have the ability to make management decisions and will be personally liable for the partnership, including any debts and incomes that go along with it.

Limited Partnerships

Limited Partnerships are formed between one or more general partners and one or more limited partners. Because partners have different roles in the company, they will also share different liability. General partners have unlimited liability while limited partners are liable only to the extent of their contributions. Accordingly, only general partners can make management decisions in a Limited Partnership.

Joint Stock Companies

Joint Stock Companies are registered at the Georgian Stock Exchange, typically by a single founder. As such, shareholders of the business will not be held personally liable for debts accrued by the company. However, shareholders are responsible for deciding upon and authorizing a share capital. If shares are registered at the stock market, a supervisory board will be appointed as well.

Buckley Bala Wilson Mew LLP: Your Business Law Advocates in Atlanta

The process of choosing a business entity is best done under the guidance of legal professionals who can help ensure you make the best decision for you and your company. At Buckley Bala Wilson Mew LLP, our Atlanta business litigation lawyers can help. With more than 85 years of combined legal experience to our name, we are one of Atlanta’s leading law firms for all business-related matters.

Unwavering in our commitment to protecting the rights of business owners in Georgia, we can be relied upon to help with your case. Our trusted legal team handles business litigation matters of every nature, from breach of contract to shareholder disputes, and more. Contact us today to learn more.

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