LLC vs S-Corp | What Entrepreneurs Need to Know in Georgia

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LLC vs S-Corp in Georgia

When starting a small business in the Georgia, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in Georgia. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in Georgia. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in Georgia

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in Georgia?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

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What is an S-Corp in Georgia?

Unlike a limited liability company (LLC) or other business structures, Georgia S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in Georgia

Creating a business in Georgia requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming Georgia Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in Georgia does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Georgia.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Georgia

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in Georgia is best for your business.

Federal Taxes 

There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Georgia. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Georgia are the same regarding pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Georgia are mandated to have double taxation. It means that they must pay federal taxes at the entity level.
  • Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Georgia to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes. 

Consider the following scenario: you are the sole owner of an LLC in Georgia with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

Georgia State Taxes

At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Georgia, it costs $5, which can be paid to the HI Business Registration Div.. Of course, before forming the whole LLC, you must pay the initial fee of $110 (by mail and $100 online) to the Georgia Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Georgia have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

Georgia LLC: An LLC can have any number of owners, called members, from starting Georgia Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

Georgia S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

Georgia LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in Georgia.

Georgia S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

Georgia LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

Georgia S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

Georgia LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the Georgia Operating Agreement.

Georgia S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

Georgia LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in Georgia: LLC or S-Corp?

Filing an LLC or S-Corporation in Georgia requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Registered Agent. To establish an LLC in Georgia, you must submit the Articles of Organization to the Georgia Secretary of State. Your Articles of Organization must include information about your Georgia LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Georgia S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in Georgia: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Georgia depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the Georgia LLC Cost for detailed information.

Georgia S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate Georgia LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in Georgia?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in Georgia. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734​ in Georgia.

FAQs

What’s the difference between LLC and S-Corp in Georgia?
LLCs offer more flexibility and simpler tax filings, while S-Corps are subject to stricter regulations and potentially higher tax savings in Georgia.
Can an LLC elect S-Corp tax status in Georgia?
Yes, LLCs can elect to be taxed as S-Corporations in Georgia.
What are the annual state fees for LLCs and S-Corps in Georgia?
The annual fee for LLCs is $50, and S-Corps have a fee of $225 in Georgia.
Do LLCs and S-Corps have to do business in Georgia to form their entity there?
No, both LLCs and S-Corps do not have to do business in Georgia to form their entity there.
Which business entity is better for small businesses in Georgia, LLC or S-Corp?
It depends on the needs and goals of the business, as the two businesses offer different advantages and disadvantages in Georgia.
What are the formation requirements for LLCs and S-Corps in Georgia?
To form an LLC or S-Corp in Georgia, owners must file Articles of Organization (for LLCs) or Articles of Incorporation (for S-Corps) with the Secretary of State and pay a fee in Georgia.
Are LLCs and S-Corps taxed the same by the state of Georgia?
No, LLCs in Georgia are not taxed at the entity level, while S-Corps are subject to state corporate income tax in addition to personal income tax.
Can LLCs and S-Corps do business outside of Georgia?
Yes, both LLCs and S-Corps can do business outside of Georgia as long as they follow state laws and regulations.
Who can form an LLC or S-Corp in Georgia?
Anyone can form an LLC or S-Corp in Georgia as long as they follow state laws and regulations.
Are LLCs and S-Corps required to keep documents on file with the Georgia Secretary of State’s office?
Yes, both LLCs and S-Corps are required to keep certain documents on file with the Georgia Secretary of State’s office, including the Articles of Organization or Incorporation.
Can LLCs and S-Corps have a single person owner in Georgia?
Yes, both LLCs and S-Corps can have a single individual as the owner or shareholder in Georgia.
Is it necessary to have a registered agent in Georgia for LLCs and S-Corps?
Yes, both LLCs and S-Corps are required to have a registered agent with a physical street address in the state of Georgia.
What are the liability protections for LLCs and S-Corps in Georgia?
Both LLCs and S-Corps offer liability protections in Georgia by separating the business’s assets from the owners’ personal assets.
Can Georgia residents form an S-Corp outside of Georgia?
Yes, Georgia residents can form an S-Corp outside of Georgia, but will still have to register with the Secretary of State if doing business within Georgia.
Are non-residents allowed to form LLC or S-Corp in Georgia?
Yes, non-residents can form LLCs or S-Corps in Georgia, so long as they have a registered agent in the state to receive legal notices.
How easy is it to set up an LLC or S-Corp in Georgia?
The process is relatively straightforward to set up an LLC or S-Corp in Georgia, and it can be done online with the guidance of professionals.
How do owners of LLCs and S-Corps pay taxes on their business income in Georgia?
Owners of LLCs and S-Corps pay taxes on their business income in Georgia through their personal income tax return.
Can individual states like Georgia change the tax status of an S-Corporation?
No, individual states like Georgia cannot change the federal tax status of an S-Corporation, but they can tax S-Corps at the state level.
What does it mean to be a “pass-through entity” in Georgia?
Pass-through entities in Georgia, like LLCs and S-Corps, allow profits and losses to pass through to the owners’ personal tax returns instead of being taxed separately at the entity level.
Can all businesses, regardless of industry, form LLCs or S-Corps in Georgia?
Yes, LLCs and S-Corps can be formed by businesses of all industries in Georgia.
Does Georgia tax S-Corps differently than C-Corps?
Yes, Georgia taxes S-Corps and C-Corps differently when it comes to state corporate income taxes.
How many shareholders are allowed for an S-Corp in Georgia?
S-Corps can have no more than 100 shareholders in Georgia.
Can owners of LLCs and S-Corps in Georgia be sued individually for business debts or liabilities?
No, owners of LLCs and S-Corps in Georgia are not typically personally liable for business debts or liabilities.
What types of businesses would benefit from forming a Georgia LLC?
Service businesses with lower risk levels and small businesses looking for more flexibility would benefit from forming an LLC in Georgia.
What are the tax implications for LLCs and S-Corps in Georgia?
LLCs in Georgia are not taxed at the entity level like S-Corps. S-Corps can get significant federal tax benefits but are subject to Georgia’s corporate income tax.
How long does it take to form a Georgia LLC or S-Corp?
With the required documents and fee, it typically takes a week or less to form an LLC or S-Corp in Georgia.
What are the capitalization requirements for LLCs and S-Corps in Georgia?
There are no capitalization requirements for LLCs or S-Corps in Georgia.
Can an LLC or S-Corp change their entity type in Georgia after formation?
Yes, both LLCs and S-Corps can change their entity type in Georgia after formation with the necessary forms and processes.
Can LLCs and S-Corps distribute earnings to owners in Georgia?
Yes, both LLCs and S-Corps can distribute earnings to owners in Georgia in the way of profits or dividends.
What are the benefits of forming an LLC in Georgia?
Some of the benefits of forming an LLC in Georgia include limited liability protection for members, pass-through taxation, minimal filing requirements, and ease of management.
What are the benefits of forming an S-corp in Georgia?
Some of the benefits of forming an S-corp in Georgia include limited liability protection for shareholders, potential tax savings, ease of management and increased credibility with customers and vendors.
What is the filing fee for forming an LLC in Georgia?
The filing fee for forming an LLC in Georgia is $100.
What is the filing fee for forming an S-corp in Georgia?
The filing fee for forming an S-corp in Georgia is $100.
What are the annual reporting requirements for LLCs in Georgia?
LLCs in Georgia are required to submit an annual report and pay a $50 fee by April 1st of each year.
What are the annual reporting requirements for S-corps in Georgia?
S-corps in Georgia are required to file an annual report and pay a $50 fee by April 1st of each year.
Can a single person own and operate an LLC in Georgia?
Yes, a single person can own and operate an LLC in Georgia.
Can a single person own and operate an S-corp in Georgia?
Yes, a single person can own and operate an S-corp in Georgia.
How is an LLC taxed in Georgia?
An LLC in Georgia is taxed as a pass-through entity, meaning that the profits and losses are passed through to the members and taxed on their respective tax returns.
How is an S-corp taxed in Georgia?
An S-corp in Georgia is taxed similarly to an LLC, as a pass-through entity. However, profits are allocated to shareholders based on their ownership percentage.
Does Georgia offer any tax incentives for forming an LLC or S-corp?
While Georgia does not offer any specific tax incentives for forming an LLC or S-corp, the state does generally offer competitive tax rates for businesses.
How is the liability of LLC members limited in Georgia?
The liability of LLC members in Georgia is limited to the amount of their investment in the company.
How is the liability of S-corp shareholders limited in Georgia?
The liability of S-corp shareholders in Georgia is limited to the amount of their investment in the company.
Can an LLC or S-corp be used to protect personal assets in Georgia?
Yes, both an LLC and an S-corp can be used to protect personal assets in Georgia under certain circumstances.
If formed in Georgia, can an LLC or S-corp operate across state lines?
Yes, both LLCs and S-corps formed in Georgia can operate across state lines.
Can a Georgia LLC or S-corp be owned by non-US citizens or non-residents?
Yes, both LLCs and S-corps in Georgia can be owned by non-US citizens or non-residents.
How long does it take to form an LLC in Georgia?
It typically takes between 1-2 weeks to form an LLC in Georgia, assuming that the required paperwork is in order.
How long does it take to form an S-corp in Georgia?
It typically takes between 1-2 weeks to form an S-corp in Georgia, assuming that the required paperwork is in order.
Can an LLC or S-corp change to a different entity type in Georgia?
Yes, both LLCs and S-corps can convert to a different entity type in Georgia with proper planning and filing of the necessary paperwork.
Can an LLC or S-corp in Georgia have employees?
Yes, both LLCs and S-corps in Georgia can have employees.
Do Georgia LLCs and S-corps have to file state tax returns?
Yes, both LLCs and S-corps in Georgia are required to file state tax returns.
Can inactive LLCs or S-corps in Georgia still be subject to annual fees?
Yes, inactive LLCs and S-corps in Georgia are still subject to annual fees.
Can Georgia LLCs or S-corps receive pass-through taxation in other states?
Yes, provided the other states recognize the Georgia LLC or S-corp as a valid entity.
Are documents filed with the state of Georgia publicly available for viewing?
Yes, certain documents filed with the state of Georgia are publicly available for viewing.
Can Georgia LLCs and S-corps be operated online only?
Yes, both LLCs and S-corps in Georgia can be operated online only.
Can an LLC or S-corp in Georgia change its registered agent?
Yes, both LLCs and S-corps in Georgia can change their registered agent.
Is there a limit on the number of owners an LLC or S-corp can have in Georgia?
No, there is no limit on the number of owners an LLC or S-corp can have in Georgia.
Can Georgia LLCs and S-corps own other businesses or assets?
Yes, both LLCs and S-corps in Georgia can own other businesses, assets or property.
Are there any residency requirements to form an LLC or S-corp in Georgia?
No, there are no residency requirements to form an LLC or S-corp in Georgia.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Georgia will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in Georgia and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

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