If you are starting a business and want to charter it as a corporation, there are several steps you must take to comply with Georgia and federal law. For instance, you and your shareholders may decide to apply for a unique Internal Revenue Service (IRS) tax status called the S Corporation.
If you like the limited liability corporate status but want the benefits of a pass-through tax structure, discuss this option with a Georgia S Corporation lawyer at Sparks Law. One of our knowledgeable attorneys can explain the prerequisites and help determine if this status is best for your business.
In preparing a client’s initial filing with the Georgia Secretary of State, a corporate lawyer can elect the business’s optional provision to be chartered as an S Corporation. The main benefit of this status is that the corporation does not pay federal income tax, and the business’ profits are taxed once rather than twice.
Instead, shareholders pay the taxes on profits via their personal tax returns. Shareholders are permitted to offset other personal income by using their share of the S Corporation’s losses, provided the losses do not exceed the amount they invested in the company. Some adjustments apply, which an experienced local S Corporation attorney can further explain.
Georgia S Corporations may include non-resident shareholders, but to maintain the S Corporation status, these shareholders must agree to pay Georgia income tax on their share of the company’s income that is passed through. According to the Georgia Department of Revenue, shareholders must sign a Form 600 S-CA agreement, and the S Corporation must file a Form 600S. One of our skilled S Corporation attorneys nearby can review your shareholder list to ensure required forms are filed with the state.
Once an S Corporation is operational, it runs according to the Georgia laws that govern business entities. The company should:
Entities, including S Corporations, must file annual reports by April 1 and pay an annual filing fee, as well as an annual franchise tax tied to paid-in capital. A dedicated lawyer at our firm can work with directors and officers of S Corporations to ensure filings and corporate records are compliant with state laws.
Some restrictions also apply when choosing to charter an S Corporation. These include the following:
Another critical restriction for S Corporations is that only 25 percent of the company’s gross income can come from passive income (income generated with little to no effort on the part of the company owners). Passive income is usually associated with rental income or limited partnerships and is often taxed differently by the IRS.
Along with avoiding double taxation, S Corporation status is a shield for shareholders if the company is sued. Unless they act fraudulently or in bad faith, shareholders are not liable for judgments against the company. If the company goes bankrupt, shareholders only lose their initial capital contribution, leaving personal assets intact. Additionally, if managing shareholders die or decide to sell their business interests, the S corporation remains an operating legal entity with stock transfer to other interested owners.
If you envision your business as privately held with a limited number of shareholders, consider an S Corporation structure. This status can protect shareholders against corporate judgments and provide pass-through tax status.
As you organize your corporate goals and prepare to charter your business with the Georgia Secretary of State, consult a Georgia S Corporation lawyer at Sparks Law. Our legal team is here to advise you on the right corporate structure for achieving your business goals, so give us a call today.