What Type of Business Should You Form?
When forming your own company, you have a lot of decisions to make. One of those decisions is what type of business you want to be.
There are basically four types of ways to register a business, each with its pluses and minuses: A sole proprietorship, a partnership, an LLC and a corporation.
- A sole proprietorship is a way of owning a business that is inseparable from your personal assets. You are responsible for all of the finances and liabilities. That may seem a little scary, but it’s the easiest way to get your business off the ground.
- If you have a partner, you can create either a general partnership or a limited partnership. A general partnership is the most common type of partnership; all partners contribute to the business on a day-to-day basis, and they also share in the liability. A limited partnership has a partner that may not be involved in daily business decisions, but also is not liable in lawsuits; he or she could be an investor, for example.
- A Limited Liability Company (LLC) is a business that is owned and managed by members who have limited liability. It separates the owner’s personal assets and the profits of a business. So if your LLC goes under, you won’t lose your personal finances. The Georgia Secretary of State’s office has a document that outlines what you need to do to form an LLC.
- Finally, there’s a corporation. This is a legal entity that is separate from its shareholders, which means that they can’t be liable for any debts. Corporations are difficult to set up, and taxes are usually higher for corporations, since they could be taxed for making a profit, and taxed again when shareholders get dividends.
For more information, visit your state’s business oversight agency. In Georgia, the Secretary of State, who oversees all business entities, has a brochure on the differences between all the different business entities. Check with an attorney to get the full advantages and disadvantages of each entity.
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