Hernan Taylor & Lee

Disclaimer: The following information is specific to the State of Georgia. 

There are essentially five types of companies that you could form in the State of Georgia:

1. Sole proprietorship - There is no legal distinction between the business and its owner.  The company does not exist as a separate entity in and of itself. 

• One person has complete control of the business.
• The personal assets of the owner are at risk with a sole proprietorship.  If, for example, a judgment was obtained against the company, the judgment creditor could recover the money from the personal assets of the owner. 
• The income of the company is reported by the owner on his or her personal income taxes. 
• To establish a business as a sole proprietorship, no filings with the Secretary of State are required.

2. General partnership - This form of company is essentially like a sole proprietorship for two or more people.  The general partners manage the company pursuant to a partnership agreement (which should be in writing, but is not required to be). 

• Two or more general partners have control of the business pursuant to the arrangement set forth by the general partners. 
• The personal assets of the general partners are at risk with a general partnership.  If, for example, a judgment was obtained against the company, the judgment creditor could recover the money from the personal assets of each general partner jointly and severally.  That means they could go after any of the general partners to fully recover the judgment debt.
• The income of the company is passed through to the general partners and reported by the general partners according to their share of the ownership of the company. 
• To establish a business as a general partnership, no filings with the Secretary of State are required.

3. Corporation - This form of company has a separate and distinct existence apart from its owners.  It has the capacity to sue and be sued on its own accord (rather than through its owner(s)).  The corporation is controlled by a board of directors and operated by officers for the benefit of the owners of the corporation called shareholders.  The directors are determined by the shareholders through election.  It is possible for the corporation to be run by one individual who handles all three duties, or the corporation could have any number of shareholders and a separate board of directors and officers. 

• The personal assets of the shareholders, directors and officers are generally not at risk with a corporation (although there are exceptions).  If, for example, a judgment was obtained against the corporation, the judgment creditor could recover the money from the assets of the corporation only.  The only assets the owners have at risk is their own investment in the corporation. 
• The corporation is taxed as a separate and distinct entity, except for S corporations whose income is passed through to its owners.  Election of S corporation status is done through the IRS and is available to corporations with less than seventy five shareholders and who meet other criteria (such as not having any non-resident aliens as owners).   
• To establish a business as a corporation in the State of Georgia, Articles of Incorporation must be filed with the Secretary of State.  The corporation must also file annual registrations and designate a registered agent (the person or entity authorized by the corporations to receive service of process such as lawsuits).   The corporation establishes bylaws which set forth the operating procedures for the company. 

4. Limited Liability Company (LLC) - This form of company has a separate and distinct existence apart from its owners, with limited liability protection like a corporation but with pass through treatment for taxation purposes.  It has the capacity to sue and be sued on its own accord (rather than through its owner(s)).  The owners of the limited liability company are referred to as members.    

• The personal assets of the members are generally not at risk with a limited liability company (although there are exceptions).  If, for example, a judgment was obtained against the LLC, the judgment creditor could recover the money from the assets of the LLC only.  The only assets the owners have at risk is their own investment in the LLC. 
• The income of the limited liability company is passed through to its owners, unless the LLC elects taxation as a corporation.     
• To establish a business as a limited liability company in the State of Georgia, Articles of Organization must be filed with the Secretary of State.  The LLC must also file annual registrations and designate a registered agent (the person or entity authorized by the LLC to receive service of process such as lawsuits).   The limited liability company is operated according to an operating agreement amongst the members.   

5. Limited Partnership - This form of partnership has a combination of general partners and limited parters.  The personal assets of limited partners are not at risk.  In Georgia, limited partner may participate in the management of the partnership (not true in all states).  The liability of general partners is unlimited (as with the general partnership); however, the general partner could be a corporation or the limited partnership could elect status as an LLLP to further limit the liability for the general partners.   

• A mixture of limited and general partners manage the business (in the State of Georgia).
• The personal assets of the general partners are at risk with a limited partnership, unless certain steps are taken to reduce that liability.  If, for example, a judgment was obtained against the limited partnership, the judgment creditor could recover the money from the personal assets of each general partner jointly and severally and from the limited partners only to the extent of their investment in the limited partnership. 
• The income of the company is passed through to the general and limited partners and reported by the partners according to their share of the ownership of the company. 
• To establish a business as a limited partnership, a registration must be filed with the Secretary of State.
• The limited partnership is operated according to a Limited Partnership Agreement.

September 3rd, 2008 | Category: Formation |  Print This Post | Subscribe to comments | Leave a comment | Trackback URL