One of the top questions that we receive regularly is “how should I structure my business in Georgia.” As a local CPA, it is our job to make sure you know all the pros and cons of the type of business structure to use to match your goals.
This question is dependent on what goals you have while you are starting your business. You will need to consider accounting, tax preparation, tax planning, and business development for your small business. A CPA is up-to-date with the latest tax laws and can be a trusted business advisor.
Starting Up a Business
Congratulations on starting your new business! It is an exciting step to take. It is also essential that you set up your business structure correctly from the beginning. When starting up your new business, you should talk to a CPA about the different types of business entities available for you and your business.
Here are the most common forms of business entities:
- Sole Proprietorships
- Partnerships
- Corporations
- S Corporations
- Limited Liability Company (LLC)
Sole Proprietors
The most common type of business structure is the sole proprietorship. It is also the simplest to start. Typically, they are owned, and usually operated, by one primary individual who makes all the decisions, although the proprietor may engage employees. The sole proprietor receives all of the profits and is responsible for all of the debts that the company incurs.
To start your sole proprietorship business, talk with an attorney or CPA. You can also do it yourself by getting the necessary business licenses and start operating.
Advantages of Sole Proprietorship
- Simplest and most flexible business structure
- Total control
- Full decision-making power
- Easy to shut the business
- Profits will be taxed at sole proprietor’s tax rate
Disadvantages of Sole Proprietorship
- Risks may result in personal bankruptcy
- Death or prolonged illness of the sole proprietor can lead to the end of the business
Partnerships
A legal form of business operation between two or more individuals who share management and profits is called a partnership. The federal government recognizes several types of partnerships with general and limited partnerships being the two most common types. In a partnership, each partner is personally liable for the acts of the other partners and all of the debts of the company. Unless otherwise discussed, all partners are entitled to share in the profits of the company equally.
The name of a partnership can be formed by combining the names of the partners. A partnership can also use a business name or trade name in addition to the partnership name. One of the steps of forming a partnership is to write up a Partnership Agreement that contains the details for profit sharing, control, and the settling of managerial and policy disputes. An attorney is an excellent choice to prepare the Partnership Agreement.
Advantages A Partnership
- Easier to raise finances as a partnership than as a sole proprietor
- Partners pay their tax rate on their share of the partnership profits
- Partnership losses can be offset against each partner’s other income
Disadvantages A Partnership
- The benefit of limited liability is not in a partnership
- In most legal transactions, the participation of all the partners is needed
- If a partner dies or becomes bankrupt, the partnership will be dissolved unless the Partnership Agreement states otherwise
Corporations
A corporation is a form of business that declares the business as a separate, legal entity guided by a group of officers known as the board of directors. It is one of the most advantageous ways to start a business since the corporation exists as a separate entity. Talk with your CPA about the numerous advantages and disadvantages.
S Corporations
One of the main reasons to set up a business as an S corporation is to protect the personal assets of its shareholders. You do not pay federal taxes at a corporate level as an S corporation. Talk with your CPA about the numerous advantages and disadvantages.
Limited Liability Companies (LLCs)
A US specific form of a private limited company which can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation is a limited liability company (LLC). Read more about a limited liability company. Talk with your CPA about the numerous advantages and disadvantages.
Let us help you with setting up your business correctly from the start. Call at 770-856-1309 for a complimentary consultation today.
Joshua Wilson, CPA, PC, is a full-service public accounting firm that specializes in accounting, tax preparation, tax planning, & business development for small businesses in Winder, GA, and the surrounding areas. Give Joshua a call today to set up a consultation at 770-856-1309 or email him at josh@joshuawilsoncpa.com.