ENTITY FORMATION IN GEORGIA
©2000 Perry Z. Binder, J.D.
Sole Proprietor and General Partnership (GP)
Unlimited personal liability
Taxed only on profits
Fictitious name (trade name, d/b/a) – recorded in the County Clerk’s office of the Superior Court
In GP, all partners personally liable for negligence of any partner ("Joint and several liability" with a right of "Contribution")
Easy to form – can be oral agreement (though not recommended)
Limited Partnership (LP)
- General partner involved in day-to-day activity (unlimited liability)
- Limited partners are uninvolved (liable only up to their investment)
- Taxed only on profits
Subchapter C Corporation
- Taxed on profits and dividend distribution – a double tax to shareholders
- Shield from personal liability
- Many formalities, including annual meetings
- File Articles of Incorporation with Secretary of State
Subchapter S Corporation
- Taxed only on profits
- Shield from personal liability
- Many formalities, including annual meetings
- File Articles of Incorporation with Secretary of State
- Limitations: 75 or fewer shareholders permitted; limitations on who can be a shareholder; only one class of stock permitted
Limited Liability Company (LLC)
- Taxed only on profits
- Shield from personal liability for tort or contract liability of other "Members" (Professionals are liable for personal negligence though)
- Fewer formalities than S corp
- Members file Articles of Organization with Secretary of State
Limited Liability Partnership (LLP)
- Taxed only on profits
- Shield from personal liability for tort or contract liability of other partners (Professionals are liable for personal negligence though)
- Fewer formalities than S corp
- To convert from GP to LLP, partners file Certificate of Election in County Clerk’s Office of the Superior Court
Limited Limited Liability Partnership (LLLP)
- Convert an LP to an LLLP with a Secretary of State filing
* RECENT TREND is to set up LLCs and LLPs in Georgia. Some disadvantages:
- not all states recognize these entities, especially LLP
- the personal liability shield may be weaker in some states
- less caselaw to interpret statutes, as compared to GP, C, S statutes
* PRACTICAL CONCERN with S, C, LLC and LLP
- Creditors will likely have shielded officers/members sign Personal Guaranty, thus removing their personal shield from liability