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Choosing a Legal Structure for Your Business

Updated: Oct 16, 2023

When starting a new business, you must choose a legal structure. Your decision will impact the management and control of the business, your personal liability, the type of taxes you pay, the paperwork you may need to file, and other legal considerations. Below are highlights and comparisons of the most common business structures: sole proprietorship, limited liability company, partnership, corporation, and S corporation.

Sole proprietorship

A sole proprietorship is the most basic, least regulated, and most common business structure. If you engage in business but don’t register as a specific business structure, you are generally considered a sole proprietor.

Management and control: A sole proprietorship involves one person with total control of the business and its profits.

Liability: For legal and tax purposes, the sole proprietor and the business are one and the same. This means the sole proprietor can be personally liable for the debts and obligations of the business. For example, if the business faces a legal judgment, your personal assets can be seized to satisfy debts owed.

Taxation: A sole proprietor reports taxes on his or her personal tax forms, but the business will still have to collect and/or pay taxes like other businesses (as applicable).

Administrative: In Georgia, sole proprietorships do not register with the Georgia Secretary of State. There are no administrative requirements other than obtaining a business license and registering a trade name in the county where you will transact a majority of your business to allow creditors and others the opportunity to learn the identity of the actual owner.

Limited liability company (LLC)

An LLC is similar to a corporation (discussed below) but with fewer complexities and no additional taxation. Owners of an LLC are called “members”, and most states, including Georgia, allow single-member LLCs.

Management and control: An LLC is governed by an Operating Agreement which specifies how profits are shared among members and lays out management procedures and decision-making authority.

Liability: Members have limited personal liability for the debts and actions of the LLC. Generally, members only risk their investment and in most instances their personal assets won’t be at risk in the event the LLC faces a lawsuit or bankruptcy.

Taxation: LLCs allow for the possibility of “passthrough” taxation meaning profits and losses get passed through to personal income without corporate taxes. Members of an LLC are considered self-employed and must pay self-employment tax.

Administrative: LLCs must register with the Secretary of State with annual renewals and various record-keeping and tax filing requirements.


A partnership is the simplest structure for two or more people to own a business together. The most basic is a general partnership. The other two common structures are limited partnerships (LP) and limited liability partnership (LLP).

General partnership

This structure involves two or more individuals agreeing to share all the assets, profits and liabilities of a business. Ideally, there is a written partnership agreement.

Management and control: Partners are equally involved in managing the day-to-day operations of the business unless stated otherwise.

Liability: Partners have unlimited liability for the debts and liabilities of the business, and any partner can obligate the business. Therefore, if the business has any legal or financial issues, the partners’ personal assets can satisfy the debts and obligations of the business.

Taxation: A general partnership is taxed as a “passthrough” entity with each partner taxed directly upon their share of profits.

Administrative: No formal administrative requirements other than obtaining proper licenses and permits.

Limited partnership (LP) and Limited liability partnerships (LLP)

Management and control: Unlike a general partnership, where partners share equally in running the business, with an LP a general partner oversees running the business and limited partners are not involved in day-to-day management and do not have control over business decisions.

Liability: General partners have personal liability for debts of the partnership, but limited partners do not. Generally, a limited partner’s liability extends to the money he or she invested in the business.

Taxation: An LP is taxed as a “passthrough” entity with each partner taxed directly upon their share of profits.

Administrative: There are registration requirements with the Secretary of State but no record keeping or tax filing requirements as with corporate structures.

LLPs are very similar but give limited liability to every owner. An LLP protects each partner from debts against the partnership, and they won’t be responsible for actions of other partners.


A corporation is a separate entity from its owners, who are called shareholders. It is the most complex business structure and offers opportunities to raise capital through the sale of stock.

Management and control: A corporation is governed by Bylaws and shareholder agreements. The shareholders elect directors, who govern the general affairs of the corporation. The directors appoint officers, who manage the business operations.

Liability: This structure offers the strongest protection to owners. Generally, officers, directors and shareholders are not liable for debts incurred by the company or torts committed by the business.

Taxation: Corporations pay income tax on profits. As a result, there may be double taxation when the company makes profits. First, there are taxes on corporate profits and later, taxes on dividends paid to shareholders on their personal tax returns. An exception is where there is an “s corp” election (discussed below).

Administrative: Corporations must register with the Secretary of State with annual renewals and various record-keeping and tax filing requirements.

S Corporation (S Corp)

An S corp is a special type of corporation designed to avoid the double taxation drawback of regular corporations. Owners of S corps are taxed only on the personal level.

Administrative: S corps must file with the IRS to obtain S corp status, which is a different process from registering with the Secretary of State.

If you have questions about choosing a structure for your business or would like assistance with the organization process, contact our firm for assistance.

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