Deciding to start a business can be exciting, but it requires several decisions to be made before anything else can be done. One of the essential decisions in Georgia business formation is what type of entity the business will be. The decision will affect how the business is viewed, both legally and by federal and state taxing authorities.
Many small business owners choose to form a limited liability company (LLC). It is a versatile entity because it can be classified as one of many types of entities for tax purposes. It will be up to the taxpayer to inform the IRS how the entity should be treated for tax purposes. Understanding the pros and cons of each option could help in making this decision.
For instance, every entity can deduct benefits for employees, but only a C corporation allows the deduction of shareholder/owner benefits. If this is important to the business owner, the LLC can be classified as a C corporation. Another benefit of a LLC is that is protects an owner’s personal assets from creditors. In addition, the cost of setting up and maintaining a LLC with the state is less than other options.
Whether a new Georgia business endeavor succeeds or fails may not depend on what type of entity it is, but without this decision being made during business formation, other decisions cannot be made. Depending on the circumstances, the company may not be able to operate within the state until some election is made. Further, no one wants to pay any more in taxes than is necessary, and that factor could be directly linked to the type of entity the company becomes.
Source: Fox Business, “The Tax Implications for Forming a LLC“, Bonnie Lee, June 13, 2014