How to Form an S Corp in Georgia

Key Takeaways

• Georgia S corporations benefit from pass-through taxation and limited liability for shareholders.
• To form an S corp in Georgia, you must first incorporate a business as a C corporation or LLC before filing IRS Form 2553.
• The S corp election must be filed by March 15 for the election to apply in the current tax year.
• Georgia recognizes the federal S corporation election—no additional state-level election is required.
• You’ll need a registered agent, an Articles of Incorporation filing, and ongoing compliance like annual reports and taxes.
• Forming an S corp can offer self-employment tax savings if the owner draws a reasonable salary.
• UpCounsel can help you connect with experienced business attorneys to guide the S corp formation process.

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.

Tax Implications of an S Corp in Georgia

One of the main reasons business owners choose S corp status is the potential for self-employment tax savings. Here's how taxes work for a Georgia S corporation:

• Federal Taxation: Georgia S corps do not pay federal income tax at the corporate level. Instead, shareholders report profits and losses on their personal returns.
• Georgia State Taxes: Georgia conforms to federal tax treatment of S corporations. However, the business must still file a Georgia Form 600S annually.
• Reasonable Salary Requirement: The IRS requires S corp owners who work in the business to pay themselves a reasonable salary, which is subject to payroll taxes.
• Distributions: Profits distributed after salaries are not subject to self-employment tax, which can reduce overall tax liability.

While these advantages are significant, misuse—like underpaying your salary—can trigger IRS scrutiny.

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.

Georgia S Corporation Eligibility Requirements

To qualify for S corporation status at the federal level—and thereby be recognized by Georgia—you must meet the following requirements:

• Must be a domestic corporation or LLC
• Have only allowable shareholders (individuals, some trusts, and estates)
• Cannot have more than 100 shareholders
• Only one class of stock is permitted (voting rights may vary)
• All shareholders must be U.S. citizens or resident aliens
• The business must not be an ineligible entity (like certain financial institutions or insurance companies)

Failure to meet these criteria can result in rejection or termination of S corp status.

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.

Common Mistakes to Avoid When Starting a Georgia S Corp

While the process of forming an S corp in Georgia is relatively straightforward, business owners often make the following missteps:

• Missing IRS filing deadlines for Form 2553, causing delayed or denied S corp status.
• Failing to pay a reasonable salary to shareholder-employees, which may result in IRS penalties.
• Improper recordkeeping, such as neglecting meeting minutes or failing to issue stock.
• Exceeding shareholder limits or allowing ineligible entities to become shareholders.
• Misunderstanding Georgia’s annual registration requirement, which can lead to administrative dissolution.

Working with a qualified business attorney can help you avoid these common pitfalls. You can find trusted legal professionals on UpCounsel to guide your S corp setup.

Georgia S Corporation vs. LLC Taxation

Many business owners start with an LLC and then elect to be taxed as an S corporation. Here's how they differ:

• LLC (Default Taxation): Profits are subject to self-employment taxes regardless of whether they are reinvested or distributed.
• LLC Taxed as S Corp: Owner can receive part of income as salary (taxed normally) and the rest as distributions (not subject to self-employment tax).

This hybrid model is attractive for growing businesses and is allowed in Georgia. To make this switch, file IRS Form 2553 and, in some cases, Form 8832.

Detailed Step-by-Step Process for Forming an S Corp in Georgia

Forming an S corporation in Georgia involves both state-level formation and federal-level tax election. Below is a comprehensive overview of how to form an S corp in Georgia:

1. Choose a Business Name
   Your business name must be unique and meet Georgia’s naming requirements. You can search name availability on the Georgia Secretary of State’s website.
2. Appoint a Registered Agent
   You must designate a Georgia registered agent with a physical address in the state. This agent will receive legal documents on behalf of your corporation.
3. File Articles of Incorporation
   Submit your Articles of Incorporation to the Georgia Secretary of State Corporations Division. This can be done online or by mail. The filing fee is currently $100.
4. Obtain an EIN from the IRS
   An Employer Identification Number (EIN) is necessary for tax reporting, banking, and hiring employees. You can apply for one online through the IRS.
5. Elect S Corporation Status with the IRS
   File IRS Form 2553 within 75 days of incorporation or by March 15 of the tax year. All shareholders must sign this form. If your business was previously an LLC, you’ll need to file Form 8832 before 2553.
6. Create Corporate Bylaws
   While not required by the state, bylaws outline internal rules and governance procedures and are essential for opening bank accounts and managing ownership.
7. Hold an Organizational Meeting
   Initial directors should meet to adopt bylaws, appoint officers, and authorize issuance of shares. Document everything in meeting minutes.
8. Issue Stock Certificates to Shareholders
   Although Georgia doesn’t mandate physical stock certificates, issuing them helps formalize shareholder ownership.
9. File Georgia Annual Registration
   Georgia requires an annual report (Annual Registration) due by April 1 each year. The fee is $50 and can be filed online.
10. Stay Compliant with Ongoing Obligations

• Maintain corporate records
• Hold regular meetings
• Record minutes
• Keep up with state taxes and licensing requirements

Frequently Asked Questions

1. How long does it take to form an S corp in Georgia?
   Filing Articles of Incorporation can take 5–15 business days, or faster with expedited processing. The IRS Form 2553 response can take 60 days.
2. Do I need a business license to operate an S corp in Georgia?
   Yes. Georgia does not issue a general statewide business license, but local municipalities may require one. Check with your city or county.
3. Can a single-member LLC elect S corp status in Georgia?
   Yes. Single-member LLCs can file IRS Form 2553 to be taxed as an S corporation while retaining limited liability protections.
4. Is there a Georgia-specific S corp election form?
   No. Georgia automatically recognizes the federal S corp election. There is no separate state form required.
5. What happens if I miss the S corp election deadline?
   If you miss the deadline (generally March 15), your S corp status will begin in the following tax year unless you qualify for late election relief from the IRS.

If you need help with Georgia S corporations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.