Legal Considerations of Forming a New Business Part 2/3
Part 2/3 of a series of blog posts on the legal considerations of forming a new business authored by Ginny Morris, Four Athens partner and in-house legal counsel.
One of the biggest considerations of company organization is taxes. For federal income tax purposes, LLC’s are not recognized as an entity. Therefore, limited liability companies need to select how they want to be taxed: as a sole proprietorship, a partnership, a “C” corporation or an “S” corporation. C-corporate profits are generally taxed twice, once when the company makes the profits and again when they are paid out as dividends to stockholders. For this reason, many companies in Georgia are organized as something else so that the income flows through the company and is not taxed until it is included on the owners’ (members’) personal income tax filings. There are also other tax considerations – payroll taxes, sales taxes, occupation taxes (otherwise known as business license fees) – that can have an effect on how the company should be organized. Owners should always consult with their accountant or a tax attorney to decide what their tax exposure is and how to minimize it.
(The last post in Ginny’s series will focus on how to allow room for growth within your business.)