How to Start an S-Corporation in Georgia (2024 Guide)

Start an S-Corporation in Georgia

If you want to start an LLC in Georgia, there are things that you should consider. Georgia is the home to a thriving business community, making it an attractive location for entrepreneurs. One popular business structure is the S-Corporation, which offers several tax and operational advantages. This comprehensive guide will explore the process of starting an S-Corporation in Georgia, including the costs, steps, advantages, and disadvantages associated with this business structure.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your S-corp, all the steps in this article must guide you.

What is an S-Corporation?

An S-Corporation is a type of corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. This tax treatment allows S-Corporations to enjoy pass-through taxation, meaning the corporation’s income, deductions, and credits flow through to the shareholders, who report this information on their individual tax returns. This structure helps to avoid the double taxation experienced by C-Corporations.

An S corporation (S corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other companies. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

Limitations and Requirements of S-Corp

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

You can apply for an S-Corp in Georgia if qualified for the limitations and requirements.

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How to Form an S-Corporation in Georgia?

To create S-Corp in Georgia, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement, requesting an EIN, and filing a form 2553.

Step 1: Register a Business Name in Georgia

After you have decided on the idea to start an S-Corp in Georgia, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an S-Corp, there is a complete guide on Georgia Business Name Search for a proper business name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in Georgia.
  • Limit of restricted words that need a license in Georgia
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hire a Registered Agent

The next step in starting an S-corp in Georgia is hiring a Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence. Forming an LLC with an S-corp will be easier if you have Registered Agent in Georgia.

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Step 3: File For Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). Georgia Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. For the Articles of Organization to be filed in HI Business Registration Div., you need to pay a filing fee of $100. In Georgia, the filing fee of forming an LLC is $110 (by mail and $100 online).

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Step 4: Creating an Operating Agreement

After you have filed your Articles of Organization, the next step is to create an operating agreement in Georgia. The operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following:

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure.

Step 5: Request for an EIN

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Georgia can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

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Step 6: File Form 2553 for your S-Corp Business

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or at most 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS.

In Georgia, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

Costs of Forming an S-Corporation

There are several costs associated with forming an S-Corporation in Georgia, including:

  1. Filing Fees: When forming a corporation in Georgia, you must file Articles of Incorporation with the Georgia Secretary of State and pay a filing fee of $100 for filing online and $110 for filing it by mail and in person..
  2. Statement of Information: After forming the corporation, you must file a Statement of Information (Form SI-550) within 90 days and pay a filing fee (currently $25). This statement must be filed annually after that.
  3. Franchise Tax: S-Corporations in Georgia are subject to the annual franchise tax, which is the greater of a minimum tax (currently $800) or a calculated tax based on the corporation’s net income.
  4. Other Costs: Depending on the nature of your business, additional costs may include obtaining licenses and permits, registered agent services, and professional fees for legal and accounting services.

Advantages of Forming an S-Corporation

There are numerous advantages to incorporating an S-Corp, but you should be aware of certain problems. Consider the following benefits of an S corporation:

Pass-through Taxation

S-Corporations enjoy pass-through taxation, which helps to avoid the double taxation faced by C-Corporations. This can result in potential tax savings for shareholders. Pass-through taxation is a tax system where the income, deductions, and credits generated by a business entity, such as Georgia General Partnership, limited liability company (LLC), or S-Corporation, are passed through to individual owners or shareholders instead of being taxed at the corporate level.

In this system, business profits and losses are reported on the owners’ or shareholders’ individual tax returns, and taxes are paid at their individual income tax rates. This avoids the issue of double taxation, which occurs in C-Corporations where income is taxed at both the corporate level and again when distributed to shareholders as dividends. Pass-through taxation is generally advantageous for small businesses and their owners, as it simplifies tax filings and often results in lower overall taxes.

Limited Liability Protection

Shareholders of an S-Corporation have limited liability protection, meaning their personal assets are protected from the corporation’s debts and obligations. Limited liability protection in an S-Corporation refers to the legal separation between the personal assets of the shareholders (owners) and the business assets, which protects shareholders from being personally responsible for the company’s debts and legal obligations.

In an S-Corporation, shareholders’ personal assets, such as their homes, cars, and personal savings, are not at risk if the business faces financial difficulties or lawsuits. The shareholders’ liability is limited to the amount they have invested in the company. This limited liability is a significant advantage of incorporating a business as an S-Corporation, as it provides a safeguard for the personal financial well-being of the business owners.

It is important to note that limited liability protection can only be supported if the shareholders maintain proper corporate formalities, such as keeping separate business and personal finances, holding regular shareholder meetings, and maintaining accurate business records. In such cases, courts may “pierce the corporate veil” and hold shareholders personally liable for the company’s debts and obligations.

Transferability of Shares

Shares in an S-Corporation are more easily transferable than those in an LLC, allowing for greater flexibility in ownership changes. Transferability of shares in an S-Corporation refers to the ability of shareholders to sell, gift, or otherwise transfer their ownership interest in the company to another person or entity. This is an important aspect of an S-Corporation’s structure, as it allows for flexibility in ownership and the potential for raising capital through the sale of shares.

However, there are certain restrictions on the transferability of shares in an S-Corporation, which are imposed by the Internal Revenue Service (IRS) to maintain the company’s eligibility for S-Corp status:

  • Shareholders: The number of shareholders in an S-Corporation is limited to a maximum of 100. Only individuals, certain trusts, and estates can be shareholders; other corporations and partnerships are generally not allowed.
  • Eligible Shareholders: Only U.S. citizens and resident aliens can be shareholders in an S-Corporation. Non-resident aliens are not allowed to hold shares.
  • One Class of Stock: S-Corporations can only have one class of stock. All shares must have the same rights and privileges, such as voting rights and distribution preferences. However, differences in voting rights are allowed if they are not tied to economic rights (e.g., distribution preferences).
  • Perpetual Existence: Perpetual existence refers to the concept that a business entity, such as an S-Corporation, can continue to exist indefinitely, regardless of changes in ownership or management. This means the corporation can outlive its original founders and shareholders and continue to operate even if individual shareholders pass away or decide to sell their shares.

This characteristic of an S-Corporation provides stability and continuity for the business, as it ensures that the corporation’s operations, contracts, and legal obligations remain unaffected by changes in ownership. It also makes it easier for the company to attract investors and raise capital. Potential investors can be confident that the business will continue to exist even if the original owners are no longer involved.

Disadvantages of Forming an S-Corporation

Despite these advantages, moving to an S corporation only sometimes makes sense – or at the very least, necessitates a thorough review of certain situations. The following issues may arise in particular:

Restrictions on Shareholders

S-Corporations are subject to specific restrictions, such as a maximum of 100 shareholders and limitations on the types of eligible shareholders (e.g., only individuals, certain trusts, and estates).

Single Class of Stock

S-Corporations are limited to issuing only one class of stock, which can limit flexibility in raising capital or creating different ownership structures. A single class of stock in an S-Corporation refers to the requirement that the corporation only issues one type of stock with equal rights and characteristics for all shareholders. This means that all shares of stock must have the same economic rights, such as dividend distribution preferences and liquidation rights, as well as voting rights. The single class of stock requirement is one of the key criteria the Internal Revenue Service (IRS) sets for a corporation to qualify for S-Corp status.

Increased Complexity

Forming and maintaining an S-Corporation requires more paperwork, record-keeping, and compliance with state and federal regulations than simpler structures like LLCs.

Franchise Tax

S-Corporations in Georgia are subject to the annual franchise tax, which can financially burden some businesses.

In an Georgia S-Corporation context, the franchise tax is usually based on the company’s income, net worth, or a combination of both. Since S-Corporations are pass-through entities for federal income tax purposes, meaning that their income is not taxed at the corporate level but rather passed through to individual shareholders, they may be exempt from or subject to lower franchise tax rates in some states than traditional C-Corporations.

However, S-Corporations must still comply with Georgia franchise tax requirements, which may include annual filings and tax payments. It is crucial for S-Corporation owners to understand the specific rules and regulations in their state of operation and to consult with a tax professional to ensure compliance and minimize their tax.

FAQs

What is an S-corporation in Georgia?
An S-corporation is a corporation that has selected to be taxed as a pass-through entity under the federal tax code.
How do I start an S-corporation in Georgia?
To start an S-corporation in Georgia, you will need to file Articles of Incorporation with the Georgia Secretary of State.
Can a single member LLC be an S-corporation in Georgia?
Yes, a single member LLC can be an S-corporation in Georgia by filing Form 2553 with the IRS.
What are the benefits of starting an S-corporation in Georgia?
Some benefits of starting an S-corporation in Georgia include limited liability protection, pass-through taxation, and potential tax savings.
What are the disadvantages of starting an S-corporation in Georgia?
Some disadvantages of starting an S-corporation in Georgia include additional paperwork and formalities, restrictions on ownership, and limitations on investment potential.
How many shareholders can an S-corporation in Georgia have?
An S-corporation in Georgia can have up to 100 shareholders.
Can non-residents be shareholders in a Georgia S-corporation?
Yes, non-residents can be shareholders in a Georgia S-corporation.
What is the minimum capital requirement for starting an S-corporation in Georgia?
There is no minimum capital requirement for starting an S-corporation in Georgia.
Do I need to file a separate tax return for my Georgia S-corporation?
Yes, you will need to file a separate tax return for your Georgia S-corporation.
What is the tax rate for S-corporations in Georgia?
S-corporations in Georgia are taxed at the state corporate income tax rate of 5.75%.
Are S-corporations in Georgia subject to franchise tax?
Yes, S-corporations in Georgia are subject to annual franchise tax.
Do I need to file annual reports for my Georgia S-corporation?
Yes, you will need to file annual reports for your Georgia S-corporation with the Georgia Secretary of State.
Can I change my Georgia S-corporation into a different entity type?
Yes, you can change your Georgia S-corporation into a different entity type, but it may have tax consequences.
When do I need to file my Georgia S-corporation’s tax return?
Georgia S-corporations need to file their tax return by the 15th day of the third month following the close of their fiscal year.
What happens if my Georgia S-corporation fails to file taxes?
If your Georgia S-corporation fails to file taxes, you may be subject to penalties and interest.
Can I elect to have my Georgia S-corporation taxed as a C-corporation?
Yes, you can elect to have your Georgia S-corporation taxed as a C-corporation.
Can I convert my Georgia C-corporation into an S-corporation?
Yes, you can convert your Georgia C-corporation into an S-corporation.
Do I need to have a registered agent for my Georgia S-corporation?
Yes, you will need to have a registered agent for your Georgia S-corporation.
Can I be my Georgia S-corporation’s registered agent?
Yes, you can be your Georgia S-corporation’s registered agent if you are a resident of Georgia.
What is the cost of starting an S-corporation in Georgia?
The cost of starting an S-corporation in Georgia varies depending on the filing fees and legal fees.
Do I need to obtain any licenses or permits to start an S-corporation in Georgia?
Yes, you may need to obtain certain licenses or permits to start an S-corporation in Georgia, depending on your business activities.
Can I start an S-corporation in Georgia without an attorney?
Yes, you can start an S-corporation in Georgia without an attorney, but it is recommended to seek professional advice.
How long does it take to start an S-corporation in Georgia?
It typically takes several weeks to start an S-corporation in Georgia.
Do I need to file any additional forms after starting my Georgia S-corporation?
Yes, you may need to file additional forms such as Form 2553 to elect S corporation status.
Can I own multiple S-corporations in Georgia?
Yes, you can own multiple S-corporations in Georgia.
Can I sell my Georgia S-corporation to another person?
Yes, you can sell your Georgia S-corporation to another person or entity.
What is the role of directors in a Georgia S-corporation?
The directors of a Georgia S-corporation are responsible for making strategic decisions for the corporation.
Are S-corporation shareholders liable for the corporation’s debts in Georgia?
Generally, S-corporation shareholders are not liable for the corporation’s debts in Georgia.
What is an s-corporation in Georgia?
An S-corporation is a corporation that elects to be taxed as a pass-through entity.
How do I start an S-Corporation in Georgia?
To start an S-corporation in Georgia, you need to file articles of incorporation with the Georgia Secretary of State.
Is there a filing fee for starting an S-Corporation in Georgia?
Yes, there is a filing fee for starting an S-corporation in Georgia. The fee varies depending on the type of corporation and the number of shares of stock being issued.
Can I start an S-Corporation in Georgia if I live outside the state?
Yes, you can start an S-Corporation in Georgia even if you live outside the state.
How long does it take to start an S-Corporation in Georgia?
It usually takes 5-10 business days to start an S-corporation in Georgia.
What is the minimum number of shareholders that I need to start an S-Corporation in Georgia?
You need at least one shareholder to start an S-corporation in Georgia.
Can I convert my existing business into an S-Corporation in Georgia?
Yes, you can convert your existing business into an S corporation in Georgia.
What is the advantage of starting an S-corporation in Georgia?
The advantage of starting an S-corporation in Georgia is that it provides you with personal liability protection while allowing you to avoid paying corporate income tax.
Does a Georgia S-Corporation pay state income tax?
No, a Georgia S-corporation does not pay state income tax. Instead, the corporation’s income is passed through to its shareholders.
How do I know if my business qualifies to be an S-Corporation in Georgia?
To qualify to be an S-Corporation in Georgia, your business must meet the IRS’s eligibility criteria and file Form 2553 with the IRS.
Can an S-Corporation in Georgia have more than 100 shareholders?
No, an S-Corporation in Georgia cannot have more than 100 shareholders.
Does an S-Corporation in Georgia need to hold formal board meetings?
Yes, an S-corporation in Georgia must hold annual shareholder meetings and keep attendance records and minutes of the meeting.
Can I open a bank account for my S-Corporation in Georgia before it is officially formed?
No, you cannot open a bank account for your S-corporation in Georgia until it is officially formed.
What is the difference between an S-Corporation and a C-Corporation in Georgia?
The main difference between an S-Corporation and a C-Corporation in Georgia is the way that they are taxed. S-corporations and their shareholders only pay personal income tax, whereas C-corporations are subject to double taxation.
Are S-Corporation shareholders in Georgia liable for company debts?
No, S-corporation shareholders in Georgia are not personally liable for company debts.
What documents do I need to file to start an S-Corporation in Georgia?
To start an S-corporation in Georgia, you need to file articles of incorporation, bylaws, and a shareholder agreement with the Georgia Secretary of State.
Does an S-Corporation in Georgia need a registered agent?
Yes, an S-corporation in Georgia needs a registered agent with a physical address in the state of Georgia.
Is it possible for a foreigner to start an S-Corporation in Georgia?
Yes, a foreigner can start an S-corporation in Georgia as long as they have a registered agent based in the state and United States residency.
Can I change my S-Corporation to a C-Corporation in Georgia?
Yes, you can change your S-corporation to a C-corporation in Georgia.
What taxes do S-Corporation shareholders in Georgia pay?
S-corporation shareholders in Georgia pay personal income tax on the corporation’s earnings.
Is it possible for an S-Corporation in Georgia to pay dividends to shareholders?
Yes, S-corporations in Georgia can pay dividends to their shareholders.
What is the S-Corporation filing deadline in Georgia?
The S-corporation filing deadline in Georgia is March 15.
Can an S-Corporation in Georgia issue different classes of stock?
Yes, an S-corporation in Georgia is permitted to issue different classes of stock.
What is the shareholder agreement for an S-Corporation in Georgia?
The shareholder agreement for an S-corporation in Georgia is a legal document that outlines the rights and responsibilities of each shareholder.
Is it possible to form an S-Corporation in Georgia if you’re not a US citizen?
Yes, non-US Citizens are allowed to form and own ownership in an S-Corporation meeting some strict IRS regulations and filing the adequate paperwork.
Can an S-Corporation make political contributions in Georgia?
No, an S-corporation in Georgia cannot make political contributions directly to candidates or parties.
How often does an S-Corporation in Georgia need to file an annual report?
An S-corporation in Georgia needs to file an annual report each year with the Georgia Secretary of State.
Can an S-Corporation in Georgia be owned by a trust?
Yes, an S-corporation in Georgia can be owned by a trust.
How much does it cost to file quarterly taxes for an S-Corporation in Georgia?
S-Corporations in Georgia pay a $50 annual fee for the annual tax report.

Also Read

Why You Should Start Georgia S Corp

One of the primary reasons to consider starting a Georgia S Corp is the tax advantages it provides. S Corporations are pass-through entities, meaning that the profits and losses of the business are passed through to the shareholders, who report them on their personal tax returns. This can result in significant tax savings for business owners, as income from the S Corp is taxed at the individual level, typically at a lower rate than the corporate tax rate.

In addition to tax advantages, Georgia S Corps also offer limited liability protection to their shareholders. By forming a corporation, the business owner’s personal assets are shielded from the liabilities of the business. This means that if the business is sued or faces financial difficulties, the owner’s personal assets, such as their home or savings, are protected.

Moreover, starting a Georgia S Corp can enhance the credibility of your business. Having the designation of a corporation can make your business appear more legitimate and professional to customers, suppliers, and investors. This can help you attract more business opportunities and establish stronger relationships within your industry.

Another benefit of forming an S Corporation in Georgia is the flexibility it offers in terms of ownership and management. S Corps can have up to 100 shareholders, allowing for easier growth and investment opportunities. Additionally, S Corps are not limited to US residents as shareholders, which can be advantageous for businesses with international partners or investors.

Additionally, forming a Georgia S Corp can make it easier to raise capital for your business. S Corporations have the ability to issue different classes of stock, which can attract investors looking for different levels of risk and return. This flexibility can make it easier to attract financing and grow your business in a sustainable way.

Furthermore, choosing to start a Georgia S Corporation can also provide estate planning benefits for business owners. S Corps offer more flexibility in terms of transferring ownership and planning for the future of the business in the event of the owner’s death or retirement.

In conclusion, the decision to start a Georgia S Corporation can be a smart move for your business. With tax advantages, limited liability protection, credibility, flexibility, capital raising opportunities, and estate planning benefits, S Corps offer a range of advantages that can help your business succeed and grow. If you are looking to take your business to the next level, consider forming a Georgia S Corp today.

Conclusion

Forming an S-Corporation in Georgia can be a beneficial decision for small business owners seeking liability protection, pass-through taxation, and easier transfer of ownership. By meeting the requirements set by the IRS and following the necessary steps, business owners can take advantage of an S-Corp’s unique structure and benefits. However, it is essential to consider the potential drawbacks, such as increased paperwork and limitations on ownership, before making a final decision. Consulting with a legal or financial professional can help business owners determine if an S-Corporation is right for their needs and goals.

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