What to Know Before Setting up a Limited Liability Corporation in Georgia
Updated: Feb 8
Limited Liability Corporations (LLCs) in Georgia contain similar characteristics of both corporations and partnerships. For taxation purposes, LLCs are treated as partnerships, with pass-through taxation to the individual.
The key benefit of an LLC is that you, the member, are protected from personal liability. But in order to enjoy this benefit, the member must keep personal assets and expenses completely separate from business assets and expenses. If there are commingling of funds by the member, then a creditor could potentially pierce the corporate veil to show the member is treating the LLC as an individual account, and thus go after the members assets.
Forming an LLC in Georgia requires several steps. First, you must file the Articles of Organization (AO) and pay the required fee to the Secretary of State. To register online, visit the Georgia Secretary of States website. The registered name must contain the words Limited Liability Corporation or the abbreviate LLC in order to provide notice to the public of the nature of the business entity. During the formation, another important aspect to consider is the management of the LLC. An LLC may be run by managers who are members; however, the AO can also call for the LLC to be run by a sole managing member.
The most helpful aspect of the LLC is that a member is not liable for any of the LLCs liabilities, even though a member is always liable for his own personal torts. Therefore, while the LLC itself might be liable under agency principles, there is not vicarious liability to the individual. Thus, ALL owners are shielded from personal liability on non-tortious matters.
There is also more flexible management in an LLC than a partnership, in that all owners may exercise control unless the AO states otherwise. Also, there is less tax to pay in an LLC because of pass-through taxation, as opposed to the tax treatment of a C corporation. Business profits and losses in an LLC are taxed (like an S Corp.) at the individuals income tax rate, which is more favorable.
If you have a partnership or a sole proprietorship and you want to protect your personal assets while having your business income taxed at an individual rates, an LLC could be the business formation for you. You can, but are not required to, get a separate tax identification number. This would be beneficial in ensuring that business and personal assets remain separate and further prevent a creditor from alleging commingling of funds, in an attempt to pierce the corporate veil.
Finally, since one of the primary goals of an LLC is to insulate the member against personal liability, is it crucial that when signing documents for the LLC, the member must indicate on the document that he/she is signing as a member. If the member does not sign as a member, then he/she is signing as an individual. Signing as an individual, even if done by accidental omission, will then trigger personal liability.