You have many decisions to make when chartering a corporation. One of them involves deciding whether to apply as an S Corporation, which comes with special tax designations offered by the Internal Revenue Service (IRS).
This business structure provides various benefits, such as a pass-through tax structure, but it also comes with specific restrictions. To learn more about whether this designation is right for you, speak with an Alpharetta S Corporations lawyer. At Sparks Law, our experienced business formation lawyers can walk you through your options and help determine what is best for you.
Not every business qualifies for S Corporation status. For instance, this structure does not work for businesses that intend to go public because of limitations on the number of shareholders. If you are considering chartering an S Corporation in Alpharetta, an attorney at our firm can help you understand the following restrictions:
S Corporations are also restricted in the type of income the company generates. Only 25 percent of gross income can be passive (income in which owners expend little or no effort to earn, such as from rental properties or limited partnerships). One of our S Corporations attorneys can review an Alpharetta company to determine if restrictions will preclude it from this designation.
S Corporations do not pay federal income taxes—shareholders do—so business profits are taxed only once. The company’s profits are passed to shareholders and disclosed on their personal tax returns. Shareholders can also offset personal income by declaring their share of the S Corporation’s losses up to their cost basis in the stock, which is the amount they have invested in the company. Some adjustments may apply, which an S Corporation lawyer at Sparks Law can further explain.
Shareholders in Georgia S Corporations do not have to reside in the state. However, they do have to pay Georgia income tax on their share of the company’s passed-through income, according to the Georgia Department of Revenue. Non-resident shareholders are required to submit a Form 600 S-CA agreement, and the S Corporation must submit a Form 600S. A skilled local attorney can help an S Corporation keep accurate shareholder records to ensure required forms are filed with the state.
Like all corporations, S Corporations are entities that can sue and be sued. Shareholders are shielded from being personally liable in lawsuits unless the claim involves bad faith or fraud by shareholders, officers, or directors. Shareholders are also protected from losing personal assets if the corporation files for bankruptcy, although they will lose their initial investment. The corporation does not cease to exist if shareholders die or sell their stock, which often happens with sole proprietorships and partnerships.
Georgia law governs all business structures, including S Corporations. To maintain their corporate status, a business should have bylaws and schedule regular shareholder and board of director meetings. The corporate secretary should document all meetings and keep written minutes for the corporate record book.
Additionally, S Corporations are required to file annual reports between January 1 and April 1 and submit a yearly filing fee and annual franchise tax affiliated with paid-in capital. An experienced attorney in the area can help an S Corporation file all the appropriate documents and comply with Georgia laws.
S Corporation status may be right for your business if you intend it to be privately held with a limited number of shareholders. Your shareholders would be protected from lawsuits against the business, and they could benefit from a pass-through tax status.
Discuss your business’s needs and goals with an Alpharetta S Corporations lawyer at Sparks Law. Give us a call today to get the dedicated legal support you need to ensure your company’s success.