Choosing a business structure is a critical decision for any new business in Georgia. It can have tax implications, as well as other legal and financial ramifications.
Sole proprietorships
A sole proprietorship is a business structure in which an individual operates independently without registering with the state. A sole proprietorship is not a legal entity, so the owner is personally responsible for all business debts and liabilities.
The owner will report any income earned as personal income on their individual tax return. This helps them avoid income tax rates, which can be quite high for a small business.
Partnerships
A partnership is an arrangement between two or more people who join together to run a business. They are more of an expanded sole proprietorship, which you must formally register with the state. The partners divide profits according to the agreement they made among themselves, and each partner pays taxes on his or her share of the profits reported on their individual returns.
Corporations and LLCs
According to business & commercial law, Corporations and Limited Liability Companies (LLCs) are separate legal entities from their owners. This means that business debts and liabilities belong to the company, not to its owners or shareholders.
The only challenge with these business structures is double taxation, especially with C Corps. This means the IRS will tax both the corporation’s profits and any dividends distributed to owners or shareholders. However, LLCs have a pass-through taxation feature, meaning profits are only taxed once, at the individual tax rate of each member.
The best business structure for you depends on many factors – from your intended business activities to how much risk you’re willing to take on and how much control you want over your operations. They all have tax implications, so it’s important to understand the differences before making your decision.