One of the legal services we provide here at John Edwards Law Group, LLC in Georgia is that of helping entrepreneurs start their companies. Therefore, we know that which type of business you choose to establish will affect both you and it for years to come.
Per the IRS, the following five types of entities are the most common, and each has its own advantages and disadvantages:
- Sole proprietorship
- S Corporation
- Limited Liability Company
If you want the simplest, easiest and least expensive company to set up, a sole proprietorship will fit your needs. You need not file any legal documents. Just choose your business name and start the business. You will likely want to apply to the IRS for an Employer Identification Number (EIN), but you can use your own SSN if you desire. You will not need to file a business tax return; instead, you will pay your company’s taxes as part of your own personal taxes.
A partnership represents a simple way in which to establish a company that someone else will own along with you. Here you will need a partnership agreement that sets forth the business name, each partner’s investment, ownership percentage and responsibilities. All your partnership will need to file is an informational tax return each year; you and your partner(s) will pay the company’s taxes individually in your respective percentages.
If you seek personal asset protection, you may wish to establish your company as a corporation; i.e., a stand-alone legal entity with stockholders and a registered agent. You will need to purchase a corporate seal and file Articles of Incorporation and Bylaws with the Secretary of State’s Office. Each year your corporation will need to hold an annual meeting and file its own income tax return. Shareholders pay personal taxes based on the amount of dividends they received.
Once you set up a corporation, you can elect to make it an S Corporation, a hybrid between a corporation and a partnership. This will allow you and the other shareholders to maintain limited personal liability for your company’s debts while letting you forego annual meetings and the double taxation that comes with a regular corporation.
Limited Liability Company
An LLC provides you and your co-owners another method by which to achieve limited personal liability should someone sue your company or it goes bankrupt. An LLC likewise relieves you of much of the paperwork corporations require and the double taxation corporations entail.
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