Starting a business requires an entrepreneur to decide what form the business must take and consider the advantages and disadvantages of each form. The choice is between a sole proprietorship, a partnership (for several owners), a limited partnership, a limited liability company (LLC) or a corporation. Of these, the LLC is the most popular in Georgia.
Why is the LLC popular in Georgia?
The LLC is middle of the range between a sole proprietorship (or partnership) and a corporation. It requires registration but is simpler to administer and comes with a number of benefits.
Limitation of liability
The biggest reason why an LLC is popular in Georgia is the limited liability enjoyed by its members. The members are not personally liable for the debts and obligations of the business, including debts that arise from lawsuits against the company. In simple terms, creditors cannot go after the members' homes, cars, bank accounts and other personal assets.
Limited liability is the biggest advantage that an LLC has over a sole proprietorship and a general partnership that offer no protection from business debts. A corporation also provides limited liability but it is too complex for a small business. A limited partnership protects the limited partners only but not the general partners who create and run the business. For these reasons, the LLC is the most popular choice.
Income tax advantages of an LLC
One big advantage that makes a Georgia LLC popular is the choice that is enjoys in terms of how it wants to be taxed. By default, it is a flow through entity, meaning that is does not need to pay state and federal income taxes and the members pay taxes on their share of the taxable income. This ensures there is no double taxation. However, the LLC can choose to be taxed as a C corporation or an S corporation.
If it chooses to be taxed as C corporation, it pays federal and state taxes on its profits as well as net worth taxes if it is worth more than $100,000. The members only pay income tax if they receive dividends. This is known as double taxation.
If the LLC chooses to be taxed as an S corporation, the members pay state and federal taxes on their share of the profits while the company pays net worth tax.
The State of Georgia also offers job and business tax credits that provide tax savings every year to any type of business. Some of them are Job Tax Credit (up to $1,750 per job per year) and Work Opportunity Tax Credit ($1,200-$9,600 per year).
Flexible ownership
The Georgia LLC does not restrict the number of members. In comparison, an S corporation can only have up to 100 members while a C corporation can have more than that but has to endure double taxation and strict regulation of its operations.
It is a simple structure
Unlike the sole proprietorship or general partnership, the LLC has to be registered. Beyond that it is simple. It does not need a 3-tiered management structure or to conduct meetings or maintain minutes or pass resolutions like a corporation. It can be managed by its members or by employed managers.
Ability to raise capital
An LLC can raise capital quite easily from individual investors and even add new members without giving them a full management role. The only limitation is that it cannot issue stock, meaning that any new investor must become a member. In comparison, a sole proprietorship or general partnership cannot raise capital from any individual without making them a partner.
Get help to form an LLC
The Georgia Secretary of State website provides useful information for anyone who wants to form a Georgia LLC. Entrepreneurs can also seek the assistance of online service providers like TRUiC for a smooth registration process. Learn more...
