Continuing our exploration of business structures, we move from limited partnerships to LLCs
A Limited Liability Company or LLC is an incorporated organization that is formed under State Law. While similar to a limited partnership, an LLC is different in some unique and important ways. First, unlike a partnership, no member of an LLC is personally liable for the LLC’s debts or obligations only because they are a member of the LLC. Second, unlike limited partnerships, members may be involved in the operations of the company’s business without running the risk of becoming personally liable for the LLC debts or other obligations. Third and finally, an LLC member can serve in multiple positions. An individual is not limited to two roles, like a general partner or limited partner, in the case of a Limited Partnership. As such, an LLC can be managed by some or all of its members, by a designated manager, or by a board of managers who do not necessarily have to be LLC members. In the most fundamental terms, an LLC is akin to a limited partnership, but it also contains some of the benefits of forming a more formal corporation.
How is an LLC Established?
Under the Georgia Limited Liability Company Act (the “Georgia LLC Act”), one or more organizers (the people establishing the business) must file an Articles of Organization with Georgia’s Secretary of State Office. Interestingly, very little information is required in the articles of organization itself. First, the document must state the LLC’s name (which must meet a list of basic requirements under the act, including having the word limited liability company or various abbreviations like LLC or LC. in its name). Second, the document may include any other provisions consistent with the law.
Filing the Articles of Organization is also an easy process. They can be submitted online or mailed to the Secretary of State’s office.
Finally, a Limited Liability Company must file an annual registration with the Secretary of State – O.C.G.A. § 14-11-1103. The LLC must designate a period of one, two, or three years as the valid annual registration period. If any of the provided registration information changes during the filing period, an LLC must amend its filing documents. Again, the process is surprisingly easy and can be done through the Secretary of State’s website or mailed to the office.
Advantages of Forming an LLC
There are many advantages to forming an LLC. First and most importantly, members of the organization enjoy limited liability from the company’s actions. Second, an LLC has greater flexibility in allocating profits amongst its members and fewer ownership restrictions. Third, freedom of contract for the LLC’s management – meaning the managers of the business have, generally, more leeway in contracting for the organization. Fourth, an LLC comes with pass-through taxation. This means that a member of the LLC can avoid double taxation (taxes on the business followed by taxes on the money members receive from the business). Although, the members can choose an alternative tax scheme.
Additionally, a Limited Liability Corporation can be considered a baby corporation. It enjoys many of the benefits of a corporation, like limited liability for its members, but it also has fewer formal rules than traditional corporations or publicly traded entities. For example, an LLC does not have to have an annual meeting or keep written minutes of its internal proceedings.
Disadvantages of forming an LLC
Because LLCs can be considered a baby corporation, they have disadvantages similar to partnerships and corporations. First, some member income could be subject to self-employment tax like partnerships. Second, like partnerships, an LLC planning on eventually becoming a public company can have additional legal hurdles before reaching that goal. And finally, similar to corporations, LLCs can be far more complex than partnerships.
Is an LLC right for your business?
The best entity for your business depends on your goals as well as your liability, taxation, and management preferences.
An experienced, knowledgeable Georgia business law attorney can help you figure out which entity is right for your business. Call our office to speak with one of our business attorneys. We are here to support you at every business stage!
