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22
September 26, 1996 AUGUSTA FOCUS
Structuring your business to meet your needs
One of the most important deci
sions you face when starting a busi
nessischoosingthelegal formunder
which it will operate. Since each
business form has its own set of
advantages and disadvantages, the
Georgia Society of CPAs urges you
toexamine each one carefully before
making a decision.
A soleproprietorshipisa business
owned and operated by one person.
Since there are no special federal
legal requirements for establishing
asoleproprietorship and noneed for
alegalcharter, yougenerallycanget
started without an attorney.
However, some state and local
governments do require that you
obtain a business license. The most
serious disadvantage of conducting
business as a sole proprietorship is
theunlimited liability you face. Since
youandthebusinessareoneand the
same, you are personally liable for
the business’ debts and other legal
and financial obligations. Conse
quently, your personal assets are at
risk. As a sole proprietor, your busi
ness’ net profit or loss is combined
with your other income and then
taxed at your individual rate. You
also may be required to pay self
employment tax.
A partnershipis an unincorporat
ed business owned and operated by
two or more people. It can be estab
lished informally or by having an
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attorney prepare a written partner
ship agreement that defines the
rights and obligations of each part
ner.
While the partnership is not a
taxable entity, the business reports
partnership income, gains, losses,
deductions, or credits as reported to
them on Schedule K-1. You also
must pay self-employment tax in
some situations. The main draw
back of a general partnership is the
same asthatofa sole proprietorship
— each partner is personally liable
for business debts. An option to con
sider is a limited partnership ar
rangement. Available in many
states, these entities limit the liabil
ity of partners to the extent of the
amount of money they have invest
ed in the business. However, each
limited partnership must have a
general partner who is responsible
for administering the business and
is liable for all company debts.
A relatively new form of busi
ness available in some states —
limited liability partnerships
(LLPs) — provides further liabil
ity protection. Partners aren’t lia
ble for acts, errors or negligence of
others unless they supervised or
were involved in the work. They
are, however, responsible for con
tractual obligations.
Corporations, which must ad
here to state laws, can be more
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#5
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Across from Pizza Hut
complex and expensive to estab
lish than other business entities.
But, the major advantage is that
the owners of the company are not
liable for the company’s debts.
Generally, the company isrespon
sible for its debts only up to the
amountofits assets, but the stock
holder may be responsible to the
extent of his or her investment.
But be careful — in some situa
tions, courts have allowed credi
tors to “pierce the corporate veil”
to reach individual assets.
On the other hand, organizing
as a regular, or C, corporation
tends tocarry a heavy taxburden.
Income can be taxed twice — once
when it is earned by the corpora
tion and again when dividends
aredistributed toindividual share
holders. Small companies can
avoid this double taxationby elect
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2743 Perimeter Parkway, Augusta, Ga. 30909 @ i
Augusta, GA: (706) 863-5626
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560-0350
#3
2603 Tobacco Rd.
Windsor Spring Rd.
Across from Video Whse.
863-0060
e
3836 Washington Rd.
In front of
K-Mart Pharmacy
ing to file as an S corporation. In
an S corporation, profits and loss
es pass through the corporation to
its shareholders with no extra tax
to the corporation. Each share
holder includes his or her propor
tionate share of profits and losses
in individual income on his or her
tax return, and it is taxed at per
sonal income tax rates.
As with corporations, owners of
LLCs are not generally liable for
debts and obligations of the LLC.
Be aware, however, that some
state statutes may not allow pro
fessionals or sole proprietors to
organize as an LLC. Since the
form of business you choose will
impactthelegal, financial and tax
aspects of your business, you may
want to consult with an attorney
and a CPA before making a deci
sion.
Have Fun, Be Informed,
Enjoy Your Favorite Hits!
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Free booklet offers
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The No. 1 killer of U.S.~children
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According to the National Safe
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