Georgia S Corporation: Everything You Need to Know
A Georgia S Corporation is a corporation with shareholders that elect for a special tax status through the IRS.3 min read
2. Disadvantages of a Georgia S Corporation
3. Frequently Asked Questions About Georgia S Corporations
4. Steps to Becoming a Georgia S Corporation
A Georgia S Corporation is a corporation with shareholders that elect for a special tax status through the IRS. An S corporation allows Georgia businesses to benefit from the limited liability of corporations without giving up the pass-through taxation benefits. Georgia S corporations do not pay income taxes as a company. Instead, shareholders pay their share of taxes on their own personal tax returns.
This means that the profits of the business are only taxed once. Not all corporations are eligible to become an S corporation. Corporations must have 100 or fewer shareholders, among other eligibility concerns.
Advantages of a Georgia S Corporation
- S corporations help protect shareholder personal assets if the business is sued or goes bankrupt. The shareholders only lose what they invested.
- Shareholders of a Georgia S corporation are not normally liable for legal judgments against the business.
- S corporations can continue after the death or dismissal of one of the shareholders, unlike sole proprietorships and partnerships.
- It is easier to have many owners through stock offerings and to change ownership with operational disruption.
- The required annual meetings for S corporations can improve the communication of the business leadership team.
- It is possible that as a Georgia S corporation, it will be easier for you to get credit or business loans.
Disadvantages of a Georgia S Corporation
- Some business lenders may require personal guarantees from officers to get business loans or lines of credit.
- Eventually, changes in stock ownership could lead to inactive shareholders who could become voting blocks for the managing stockholders.
- Employee benefits for stockholder employees count as taxable income. This includes health insurance, life insurance, and housing costs.
- S corporations in Georgia may face more business taxes than S corporations that operate in other states, including Florida and Tennessee.
Frequently Asked Questions About Georgia S Corporations
What are the limits of the shareholders' liability?
While shareholders in an S Corporation have a higher level of limited liability protections, there are distinct cases where those protections do not apply. The leading conditions where protections do not apply include:
- Situations where the company and shareholders were complicit in actions that harmed people.
- Cases where the company was used to commit crimes such as fraud.
How is an S Corp reflected on my taxes?
In an S Corporation, the corporation itself files a tax return to show its tax liability. Each of the individual shareholders is required to include their portion of the corporation's tax liability (based on the shareholder's ownership of the company and the corporation's tax return) on their personal tax filings. That means that whatever portion of the company you own is reflected in your taxes as a part of your income.
How is a Georgia S Corporation different from other states?
In Georgia, an S Corp has an advantage in raising capital in that the company can issue and sell its own stock alongside other financial instruments. Those instruments can also be used to showed that there is considerable interest in the company, essentially making them more valuable. Georgia S Corps can easily change ownership through stock sales as well.
In all cases, S Corporations can only have one type of stock available. However, Georgia S Corps can have one type of stock with different voting rights attachments. This gives Georgia S Corps a greater level of flexibility in controlling and developing their structures.
Steps to Becoming a Georgia S Corporation
- The business must first become a corporation with the State of Georgia. This includes paying state filing fees.
- You must file the IRS Form 2553 with the Internal Revenue Service.
- Your corporation cannot have more than 75 shareholders.
- There are restrictions on who can be a shareholder in an S corporation. This includes other corporations and some trusts.
- This form must be filed before the 16th of the third month of the tax year to be considered for the same tax year.
- Shareholders must conduct regular meetings, as well as the board of directors.
- It is important to create and maintain accurate minutes of these meetings.
- Shareholders report their part of the business's income and losses on their individual tax returns.
- S corporations in Georgia must file an annual report by April 1, pay a $50 filing fee, and pay an annual franchise tax calculated based on paid-in capital.
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