Pros and cons of running a Georgia LLC
If you’re thinking about establishing an LLC in Georgia, it’s important to evaluate the advantages and disadvantages of this particular business structure in comparison to other possible forms for organizing your business.
Opting for a Georgia LLC, or limited liability company, presents both benefits and drawbacks. These vary based on the characteristics of the LLC and the specific business structures being compared.
Creating an LLC in Georgia is frequently recommended because it provides owners with the same liability protection as a corporation but with reduced complexity. Nonetheless, there are additional factors that warrant consideration.
Limitation of liability
Pros of an LLC: LLC owners, known as members, are protected from personal liability for the company’s debts, including liabilities from most legal actions against the company. Creditors of the business cannot pursue a member’s personal assets such as their home, car, or bank accounts.
In comparison, a corporation and a limited liability limited partnership (LLLP) also provide limited liability. However, the LLC offers additional advantages, which will be outlined below. A limited partnership (LP) offers protection to limited partners but not to general partners who establish and manage the business. Sole proprietors or partners in a general partnership do not have protection from business debts.
Cons of an LLC: None.
Tax treatment
Pros of an LLC: An LLC offers considerable flexibility in federal tax treatment. A single-member LLC can opt for taxation as a sole proprietorship, S corporation, or C corporation. A multiple-member LLC can choose to be taxed as a partnership, S corporation, or C corporation. The decision should be made in consultation with a tax expert. In contrast, a sole proprietorship or various forms of partnerships lack tax options. A corporation, on the other hand, is limited to S corporation or C corporation taxation.
In terms of Georgia LLCs, unless C corporation treatment is chosen, all profits are passed through to the members. Members are then responsible for federal income and self-employment tax on their respective profit shares, even if they haven’t received the profits. However, if the LLC elects C corporation taxation, it pays federal corporate income tax, and members are taxed on distributed profits—a scenario known as double taxation.
Cons of an LLC: If an LLC selects C corporation or S corporation taxation, it becomes subject to Georgia’s corporate income tax and net worth tax. The corporate Georgia LLC tax rate stands at six percent of Georgia taxable income. This tax is payable by the LLC under C corporation status and by the members under S corporation status. Additionally, a net worth tax is imposed if the LLC’s net worth exceeds $100,000.
Flexible ownership
Pros of an LLC: An LLC allows for an unlimited number of members, providing flexibility in ownership, unlike an S corporation which is restricted to 100 members. Additionally, compared to a C corporation, an LLC can have more members without being subject to the complexities and double taxation that a C corporation entails, along with a higher degree of operational regulation.
Cons of an LLC: None.
Complexity
Pros of an LLC: Unlike a corporation’s three-tiered management structure involving shareholders, a board of directors, and officers, an LLC offers flexibility in management. It can be managed either by its members or appointed managers responsible for day-to-day operations. Additionally, while corporations have to adhere to annual shareholder meetings, board meetings, and minute-keeping requirements, there’s no such obligation for LLCs. This provides a more streamlined administrative process.
Cons of an LLC: Compared to a sole proprietorship or general partnership, which have no state registration requirements, an LLC does involve more complexity, making the setup and ongoing management process more involved.
Registration costs
Pros of an LLC: None. The registration cost for a Georgia LLC is equivalent to that of a corporation, LP, or LLLP, making it a cost-effective option for starting a business in Georgia.
Cons of an LLC: Compared to a sole proprietorship or general partnership, an LLC is relatively more expensive due to the mandatory registration process, which is not required for the other mentioned business types.
Registered agent
Pros of an LLC: While having a registered agent may not necessarily confer a distinct advantage, it does provide a convenient and reliable means to ensure that legal documents, such as lawsuit papers, subpoenas, and wage garnishments, are received and managed appropriately.
Cons of an LLC: Unlike a sole proprietorship or general partnership, which are not obligated to have a registered agent, an LLC is required to have one. The cost of hiring an external registered agent for an LLC can range from $40 to $500 annually, depending on the chosen agent. It’s important to note that corporations, LPs, and LLLPs also require a registered agent.
Ability to raise capital
Pros of an LLC: An LLC can often find it easier to attract investment capital compared to a sole proprietorship or general partnership. Unlike these other business structures, an LLC can bring in investors without making them full partners and allowing them a lesser role in management.
Cons of an LLC: Unlike a corporation, an LLC cannot issue shares of stock, making the process of bringing in new investors more complex as they would need to become LLC members. Additionally, many external investors view LLCs as riskier and prefer investing in corporations. Banks and lenders may also be more hesitant to directly loan to an LLC compared to a corporation. Members of an LLC might be required to personally guarantee a loan, which eliminates the personal asset protection for those specific loans. However, small start-up corporations’ owners may also be required to provide a personal guarantee to secure loans.
For more information to determine the best company structure, you can refer to the Georgia Secretary of State corporations website. Additionally, to facilitate a smooth registration process, considering the assistance of an online services provider may be beneficial.