Types of Business Ownership

What type of ownership is right for you?

Owning a business can be both financially and personally rewarding and give you more autonomy over how you spend your time. But starting a business has its risks, so it’s important to determine what type of business ownership is right for you. There are three major forms of business ownership:

  • Limited liability companies (LLCs)
  • Corporations
  • Partnerships

Each type of ownership offers a different level of personal liability protection, that is, protection against being individually and financially responsible for business debt. While no legal structure gives you complete liability protection, some grant more options than others.

LLCs (Limited Liability Companies)

An LLC is a business structure that is owned and managed by members who are granted limited liability. Unlike a sole proprietorship, an LLC separates personal assets and liability from the profits & liabilities of a business. If an LLC starts to tank financially or suffers a major loss/liability (e.g., due to a negligent act, contract dispute, or lawsuit), the owner may be protected from losing their personal assets. An exception to this rule is when the owner has personally guaranteed a debt.

Corporations

A corporation is a limited liability entity, which means that shareholders of a corporation (the owners) are not personally responsible for the corporation’s financial or legal obligations. Many owners decide to form corporations because of this limited liability, as well as possible tax benefits.

Partnerships

For tax purposes, all business partnerships in Georgia are considered pass-through entities, which requires partners to report income or losses sustained by the business on their individual state and federal tax returns.

General Partnership (GP)

The simplest partnership structure, a general partnership offers no liability protection. The partners (called general partners) are liable for all the business debts regardless of how the debts were incurred or which partner was responsible for incurring them.

If a GP offers little to no liability protection, why do some people choose it? General partners are authorized to make major decisions regarding how the partnership will be run. This partnership is popular with companies that are trying to raise money because investors can invest freely, knowing they are only liable for the money, equipment, or assets they invest.

Limited Partnership (LP)

Limited partners benefit from being protected from liability for the debts of the business beyond their own personal investment in it. Unlike general partners, limited partners are not personally for all partnership debts.

Starting a Business? We Can Help!

Starting a business is an exciting step; don’t get bogged down by regulations and legalese. Our business attorneys are well-versed in business law and can help you make important legal decisions, so you can focus on what matters most. Request a consultation today!