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Which type of business entity should an entrepreneur choose?

by | Mar 2, 2018 | Business Formation |

As a Georgia entrepreneur, you constantly see business opportunities that others fail to see. Consequently, you come up with great new business ideas that no one else would think of.

But while entrepreneurship is a marvelous character trait, you also need to have good business savvy.

Entity options

How you set up your new company probably is the most important decision you must make because it affects virtually every aspect of your new business. It determines the number and type of legal documents your attorney must draft for you. It determines how your business will pay its federal and state income taxes and who will pay them; i.e., you, your business or a combination of both. It determines how much personal liability you will be exposed to should something go wrong and someone sues your business.

You have the following four basic options:

  1. Sole proprietorship
  2. Partnership (several different kinds)
  3. Corporation (several different kinds)
  4. Limited Liability Company

Sole proprietorship

A sole proprietorship is the simplest and easiest business form. You are the only owner, and you and your business are one. You do not need a business Employer Identification Number because your Social Security number also applies to your company. You have complete control over how you run your company. The downside, however, is that its income is your income and you must pay its taxes as part of your own.


With a partnership, you share ownership and control of your company with one or more other people. Each of you contributes assets, such as money, property, skill, labor, etc., and each of you shares in the company’s profits. While a partnership is a legal entity, its profits pass through to each of you in the percentages on which you have agreed, and each of you pays your own share of the income taxes due. A partnership requires a partnership agreement setting forth all aspects of the partners’ various agreements. This legal document often is quite lengthy and can be very complex depending on the number and types of agreements involved. The advice and counsel of a qualified business law attorney are crucial.


A corporation requires the most paperwork, both to form your business and to run it as legally required. Initially, you must have articles of incorporation, bylaws and a shareholder agreement. As with partnership documents, these can be very lengthy and complex, and your attorney should draft them for you. You must file your articles of incorporation with the Corporations Division of the Georgia Secretary of State’s office. You will then have to file annual reports with the same office.

After your bylaws are in place, you must elect directors of your corporation to adopt them. You also will need to elect corporate officers and issue stock to your corporation’s owners as specified in your articles of incorporation.

A corporation is not only a legal entity, it also has its own legal identity. This means that your corporation pays its own income taxes on its profits. However, each shareholder is responsible for paying personal income taxes on any dividends that (s)he received that year. This double taxation aspect is one of the major downsides of setting up your new business as a corporation. On the other hand, the fact that your corporation shields you from personal liability in the event someone sues it is a major upside.

Limited Liability Company

A Limited Liability Company combines certain aspects of a corporation and a partnership. If you form an LLC, you have the same pass-through taxation as you do with a sole proprietorship or partnership, but the limited liability benefit of a corporation.

Starting your new business will be both exciting and challenging. Getting the proper legal help makes your life easier both now and in the future.