Establishing and operating a business enterprise is the basis for the American dream. Determining whether to run your business as an S corporation, C corporation, limited liability companies (LLC), or other business entity will depend on your individual goals. This blog discusses the pros and cons between business entities under Georgia Law.
Corporations
A corporation is one of the most complex type of business entity when it comes to the formation, ownership, management and operation of a business. It is a separate legal “person” that exists apart from that of its owners or shareholders. This offers a level of liability protection for owners and shareholders, as the liability for business acts does not extend beyond the business. A corporation can have only one owner or shareholder. As a result, corporations are taxed differently from other entities. The method of taxation depends on whether the corporation is an S corporation or C corporation.
C Corporations: Because a corporation is a separate legal entity from its owners, its profits are taxed as corporate income. Significantly, if any of the corporation’s profits are distributed to owners or shareholders as dividends, the dividends are also taxed as personal income. As a result, C corporations have what is considered to be “double taxation.” Double taxation can be mitigated to the extent that it pays dividends through a qualified pension and profit-sharing plan.
S Corporations: Closely-held corporations have the benefit of limiting the liability of owners without double-taxation. A closely-held corporation is managed directly by the shareholders and does not require the establishment of a board of directors, unlike other corporations. An s corporation essential acts as a conduit for corporate income.
Professional Corporations
Under the Georgia Professional Corporation Act a business that provides professional services can be formed as a corporate entity. However only specific professions can qualify to form a professional corporation.
Under Georgia law, the following professions can form a professional corporation:
- Certified public accountants
- Architects
- Chiropractors
- Dentists
- Professional engineers
- Land surveyors
- Lawyers
- Pharmacists
- Psychologists
- Medical and surgical professionals
- Optometrists
- Osteopaths
- Podiatrists
- Veterinarians
- Registered professional nurses
- Harbor pilots
Limited Liability Companies
A limited liability company enjoys the liability protection of a corporation without the disadvantage of double-taxation and compliance with corporate formalities. LLCs have their own legal formalities with regard to formation, ownership, management and operation. LLCs are directly managed by its members.
Limited Liability Limited Partnerships
A limited liability limited partnership (LLLP) is an entity where general partners are not individually liable for the debts, obligations or liability of the partnership or another general partner in situations where liability would only have arisen by virtue of the partnership relationship.
Nonprofit Corporations
Nonprofit corporations are charitable organizations that enjoy certain tax advantages. Under Georgia law, a “charitable organization” is defined as “a benevolent, philanthropic, patriotic, or eleemosynary business entity that solicits or receives contributions from the general public.” All charitable organizations must file a registration statement with the Georgia Secretary of State, subject to exceptions.
The following organizations aren’t required to register with the Georgia Secretary of State:
- Nonprofit educational institutions
- Business, professional, and trade associations that don’t solicit members or funds from the general public
- Fraternal, civic, benevolent, patriotic, and social organizations
- Persons requesting any contributions for relief of any other individual
- Charitable organizations with gross revenue lower than $25,000 for the past two calendar years
- Local or state-wide organization of hunters, fisherman, and target shooters federally recognized as a nonprofit organization
- Religious organizations
- Political parties and candidates required to file financial information with federal or state elections commissions
