A sole proprietorship is the simplest form of business, and gives the owner the greatest flexibility. However, this form of business gives the owner no protection from the debts of the company. The owner is personally liable for the company’s taxes and other debts. The situation is much the same for a partnership: The partners are personally responsible for the debts of the business.
A corporate business structure creates much more separation between the individual owners and the business entity. It is very difficult for the government or creditors to pierce the corporate veil in order to take money from the individual owners of a corporation. However, setting up and maintaining a corporation are complicated matters — too complex for most small businesses.
The limited liability company, or LLC, offers a middle ground between these types of business formats. An LLC offers some protection to the personal finances of its owners without burdening them with all the formalities and regulations faced by a corporation.
The formal requirements
All that said, there are formalities involved in setting up an LLC in Georgia. These include:
- Choosing a name: Georgia will not register a name that is the same or even overly similar to a name used by an existing business.
- Registering with the state: Georgia businesses must submit Articles or Organization to the Georgia Secretary of State. The filing fee for online registration is $100.
- Choosing a registered agent: An LLC must list a person or entity who is responsible for accepting all legal documents on behalf of the LLC. This may be an individual or a business that offers to represent the LLC. The agent must provide a street address in Georgia.
- Tax requirements: LLCs can choose to be taxed as sole proprietorships, partnerships or as corporations. Each format comes with different filing requirements. Note that LLCs may also need a Sales and Use Tax Number if they plan to sell goods that are subject to Georgia state and local sales taxes. A conversation with your CPA is always a good idea prior to making tax elections.
Other steps
Some other steps to consider:
- Operating agreement: Georgia law does not require LLCs to have a formal operating agreement, but it is a very good idea to have one. This agreement typically lays out the duties and responsibilities of the owners and provides methods for paying the owners and resolving disputes between them.
- Employer Identification Number: If an LLC is going to have employees or even multiple members, it must have an Employer Identification Number. Also known as a tax identification number, an EIN is necessary for setting up payroll and opening new bank accounts in the name of the business. EINs are obtained through the IRS.
- Business bank accounts: The major advantage of an LLC is to provide some separation between the business’ assets and the personal assets of the owners. Therefore, it is important to make sure the business’ assets and the individuals’ assets are kept in different bank accounts.
