SUMMARY: One of the most important and threshold issues in starting a new venture is the choice of business entity. The first decision is making the choice is whether a pass though is desired. If not, the C Corporation is probably your entity. However, if pass through is desired along with limitation of liability (who would not seek this), you are now ushered to either an LLC or an S corporation. There are some situations whether the business is passive and no significant liability attaches (very rare indeed in today’s world) and then you might choose a general partnership.

In most situations the LLC will probably dominate where one previously used either the S Corporation or the limited partnership and in some situations also where one used the C Corporation. This is true even in light of the advantages extended to C Corporations by JGTRRA. One must carefully consider all factors. But the avoidance of the entity level tax and the pass-through of the character of the income and/or the availability of losses to offset income from other sources, will prove advantageous in most cases. When the owners decide to sell or transfer the business to successors, they will be no corporate level tax and the proceeds of sale will generally qualify for capital gain treatment at the member or shareholder level.

Still, the "C" corporation does have its advantages in the benefit area, particularly with respect to the availability of nontaxable fringe benefits and asset protected retirement plans. Hence, as stated repeatedly, one must carefully consider long term goals in electing the choice of business entity. My clients generally prefer to continue using the "C" corporation in circumstances where a "C" corporation was formerly used.

Gary L. Coulter

Mr. Coulter has been a member of the Georgia Bar for over 30 years and limits his practice to taxation, business transactions and wealth management. He has also served as CEO of two different public companies and frequently involved in equity transactions. He can be contacted at gcoulter@gctaxlawyer.com or by telephone at 706.546.9755 or 1888.5TAXLAW.

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