If you are thinking about forming a Georgia limited liability corporation (LLC) for the ultimate liability protection, you should weigh the pros and cons of this structure against alternative options. Organizing your firm as a Georgia LLC, or limited liability corporation, will have benefits and drawbacks depending on its features and the types of business structures being compared. In Georgia, forming an LLC is frequently advocated since it provides owners with the same limitation of liability as a corporation, but with less complexity. However, there are also other factors to consider.
Limitation of Liability
LLC pros: LLC owners, also known as members, are not individually accountable for the company’s debts, including debts incurred as a result of most litigation filed against the firm. A corporate creditor cannot seize a member’s personal assets (home, car, bank accounts, etc.).
Although a corporation and a limited liability limited partnership (LLLP) both provide limited liability, the LLC offers additional benefits that will be explained below. A limited partnership (LP) protects the limited partners but not the general partners who founded and govern the company. Sole proprietors or general partnership partners are not protected from business debts.
LLC cons: None.
LLC pros: In terms of federal taxation, an LLC has the most leeway in how it is taxed. A single-member LLC may be taxed as a sole proprietorship, S corporation, or C corporation. An LLC with two or more members (a multiple-member LLC) has the option of being taxed as a partnership, S corporation, or C corporation. The best option is to talk with a tax specialist. There are no taxation choices for a sole proprietorship or any form of partnership. There are just two options for a corporation: S corporation or C corporation.
Unless C corporation treatment is chosen, all Georgia LLC revenues are distributed to members. Even if they do not earn any profits, the members must pay federal income and self-employment taxes on their portion of the profits. An LLC that chooses C corporation taxation pays federal corporate income tax, and the members pay tax on any earnings paid to them—this is referred to as double taxation.
LLC cons: If an LLC elects C corporation or S corporation taxation, it will be subject to both Georgia’s corporate income tax and net worth tax. The corporate Georgia LLC tax rate is 6% of taxable income in Georgia. If C corporation status is chosen, it is payable by the LLC; if S corporation status is chosen, it is payable by the members. If the LLC’s net worth exceeds $100,000, the net worth tax is also applied.
LLC pros: There are no restrictions on the number of members of an LLC, whereas an S corporation is limited to 100 members. A C company can have more members, but its operations will be subject to double taxation and increased regulation.
LLC cons: None.
LLC pros: A corporation’s management structure is three-tiered, with shareholders, a board of directors, and officials. An LLC can be administered by its members or by managers who are appointed to oversee day-to-day activities. Corporations must hold an annual shareholder meeting, board meetings, and record minutes of those sessions. There is no necessity for LLC members to have meetings or keep minutes.
LLC cons: A limited liability company (LLC) is more complicated than a sole proprietorship or general partnership, neither of which is subject to state registration procedures.
LLC pros: None. The Georgia LLC registration fee is $100 for the first year and $50 per year after that, the same as for a corporation, limited partnership, or limited liability company.
LLC cons: Because neither a sole proprietorship nor a general partnership are required to register, an LLC is more expensive than these other types of organizations.
A registered agent is a person or firm who is designated to receive formal legal documents on behalf of a company, such as lawsuit papers, subpoenas, and wage garnishments.
LLC pros: Although having a registered agent may be a simple way to ensure legal documents are received and handled appropriately, there is no benefit to having one.
LLC consul An LLC, unlike a sole proprietorship or general partnership, must have a registered agent. Hiring an outside registered agent can cost you between $40 and $500 each year, depending on the agency. Corporations, limited partnerships, and limited liability partnerships (LLPs) must also have a registered agent.
The Georgia Secretary of State Corporations page contains additional information that may assist you in determining the right structure for your business. You may also want to consider enlisting the help of an online services provider to ensure a seamless registration process.