Organizing your business as a Georgia LLC, or limited liability company, will have advantages and disadvantages, depending upon its features and the types of business structure being compared.
Forming an LLC in Georgia is often advised because it offers owners the same limitation of liability as a corporation, but with less complexity. However, there are other aspects that should be considered.
Limitation of Liability
LLC pros: LLC owners, also called members, are not personally liable for the debts of the business, including debts from most lawsuits against the company. A creditor of the business cannot go after a member's personal assets (home, car, bank accounts, etc.).
A corporation and a limited liability limited partnership (LLLP) also afford limited liability, but the LLC has other advantages that will be discussed below. A limited partnership (LP) protects the limited partners, but not general partners who create and run the business. Sole proprietors or partners in a general partnership have no protection from business debts.
LLC cons: None.
LLC pros: For federal tax purposes, an LLC has the most flexibility as to how it's taxed. A single-member LLC can choose to be taxed as a sole proprietorship, an S corporation, or a C corporation. An LLC with two or more members (a multiple-member LLC) can choose being taxed as a partnership, an S corporation, or a C corporation. The choice is best made in consultation with a tax expert. A sole proprietorship or any version of a partnership has no taxation options. A corporation only has two choices: S corporation or C corporation.
Unless C corporation treatment is elected, all Georgia LLC profits are passed through to the members. The members pay federal income and self-employment tax on their share of the profits, even if they do not actually receive any profits. An LLC electing C corporation taxation pays federal corporate income tax, and the members pay tax on any profits that are actually distributed to them—this is commonly known 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 six percent of Georgia taxable income. It is payable by the LLC if C corporation status is elected, and by the members if S corporation status is elected. The net worth tax is also assessed, if the net worth of the LLC is more than $100,000.
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 corporation can have more members, but will be subject to double taxation and more regulation regarding its operations.
LLC cons: None.
LLC pros: A corporation has a three-tiered management structure, with shareholders, a board of directors, and officers. An LLC may be managed by its members, or by managers selected to run the day-to-day operations. Corporations must hold an annual meeting of the shareholders, hold board meetings, and keep minutes of those meetings. There is no requirement for the members of an LLC to conduct meetings and maintain minutes.
LLC cons: An LLC involves more complexity than a sole proprietorship or general partnership, neither of which are subject to state registration requirements.
LLC pros: None. The Georgia LLC registration cost is $100 for the first year, and $50 per year thereafter, the same as for a corporation, LP, or LLLP.
LLC cons: An LLC is more expensive than a sole proprietorship or general partnership, since neither of these other types of businesses is required to register.
A registered agent is a person or company that is designated to receive official legal documents for a business, such as lawsuit papers, subpoenas, and wage garnishments.
LLC pros: There is no advantage to having a registered agent, although it may be a convenient way to be sure legal documents are received and handled properly.
LLC cons: Unlike a sole proprietorship or general partnership, an LLC is required to have a registered agent. Hiring an outside registered agent will cost from $40 to $500 per year, depending upon the agent you hire. A registered agent is also required for corporations, LPs, and LLLPs.
Ability to Raise Capital
LLC pros: An LLC may find it easier to raise investment capital than if it were structured as a sole proprietorship or general partnership. Neither of these other forms of business can take on investors without making them a partner, but it is possible for an LLC to add new members without giving them as full a role in management.
LLC cons: Unlike a corporation, an LLC cannot issue shares of stock. Any new investor would need to become a member of the LLC, which is more complicated. Furthermore, many outside investors consider LLCs risky, and prefer to invest in corporations. Also, banks and other lenders may be more reluctant to loan directly to an LLC than they would to a corporation. Members of the LLC may be required to personally guarantee a loan, which eliminates the personal asset protection as to such loans. However, lenders may also require a personal guarantee from the owners of a small start-up corporation.
The Georgia Secretary of State corporations website provides additional information that may help you determine the best structure for your company. Also, to ensure a smooth registration process, you may want to consider having the assistance of an online services provider.