When starting a new business in Georgia, a critical early decision you will face is choosing a legal structure. Two popular options are corporations and limited liability companies (LLCs), but how do you decide?
A look at some vital differences between the two can help you make an informed decision.
Taxation differences
Corporations are subject to double taxation. First, the company pays corporate income tax on its profits. Then, shareholders pay income tax on dividends they receive. This structure can be suitable for larger companies with complex needs.
LLCs offer taxation flexibility. For example, they can be taxed as a sole proprietorship or partnership. LLC owners report business income on their personal tax returns, helping to avoid the double taxation peril. LLCs can be ideal for entrepreneurs seeking simplicity with tax benefits.
Liability protection
In corporations, shareholder liability is typically limited to their investment in the company. That means their personal assets may be safe from business debts and legal claims.
Like corporations, LLCs provide limited liability protection. The personal assets of LLC members remain separate from business liabilities, potentially reducing financial risk.
Ownership and formalities
Corporations have a more rigid structure. They require regular meetings, bylaws, and detailed recordkeeping. Shareholders own stock, and ownership is transferable.
LLC: LLCs offer flexibility as they require few formalities and ownership is expressed through membership interests. The transfer of ownership in an LLC is usually simpler than in a corporation.
Legal and tax guidance can help you choose the business structure that best aligns with your company goals. Whether you opt for the formality of a corporation or the flexibility of an LLC, Georgia has a supportive environment for entrepreneurs, offering a chance to flourish.