When chartering a business in Georgia or any other state, owners must choose the structure under which it will operate. Large businesses with many shareholders that intend to go public and trade on a national stock exchange may choose a C Corporation designation. This option allows for the flexibility to add shareholders, raise capital, and offer different stock classes. However, smaller, privately held entities can also elect to operate as C Corporations.
If you are chartering a business in Georgia and are deciding whether to operate as a classic corporation or an S Corporation with different tax ramifications, speak with the skilled attorneys at Sparks Law. At our firm, a Georgia C Corporations lawyer can explain the benefits of each option and help determine what is most advantageous for you and your business.
All corporations chartered in Georgia begin as C Corporations, recognized as individuals with legal rights and responsibilities. Owners begin by filing articles of incorporation with the Secretary of State.
Once created, these entities survive after owners leave or pass away, and only end when they are administratively dissolved or merged by the company’s directors. These directors, responsible for major management moves, are elected by shareholders that own the corporation. The board of directors usually appoints officers who run the company’s daily operations
At formation, owners can elect to become an S Corporation. This federal tax designation allows the corporation’s profits to pass through to shareholders, who claim them on personal tax returns, while the S corporation pays no tax. On the other hand, C Corporations report profit and losses and pay corporate income taxes. Profits can then be dispersed as dividends that are taxable to shareholders, an arrangement commonly called double taxation.
S corporations in Georgia are allowed up to 75 shareholders. These people must be U.S. residents and pay Georgia income tax on profits that pass through to them, even if they are not state residents. Corporations and most trusts cannot be shareholders in S Corporations, although they can be C Corporations shareholders.
Other differences between C and S Corporations include the following:
Understanding the differences between C and S Corporations is critical to choosing your business structure and running it effectively. An experienced C Corporations lawyer at our Georgia office can explain the benefits of this option and help you decide what best serves you and your company.
Clients who elect to charter their companies as classic C Corporations can convert to S Corporations by filing a Form 2553 with the Internal Revenue Service—provided they meet other requirements, such as having no more than 75 shareholders. Shareholders must sign a Form 600 S-CA agreement for the Georgia Department of Revenue, promising to pay Georgia income tax on the profits passed through to them. The S Corporation also files a Form 600S with the state. The local attorneys at Sparks Law are skilled at helping clients convert from a C to S Corporation.
On the flip side, S Corporations can convert back to a C Corporations by petitioning the IRS. However, the new C Corporation will have to retain the fiscal year-end of December 31 and cannot convert back to an S Corporation until five years have passed. Before making this choice, it is recommended that you discuss the implications with an attorney at our firm who focuses on C and S Corporations.
The structure you choose for your business will have a long-lasting impact on growth, profits, and taxation, among other things. As such, you should get the best counsel from an attorney at Sparks Law before making this important decision.
If you are unsure what type of structure is right for your entity, speak with a Georgia C Corporations lawyer to discuss the benefits and restrictions of each option. Call our office today to get started.
