Launching a corporation in Georgia means that you and other shareholders are bringing an entity to life. Under the law, this entity possesses many of the same rights as a person. A corporation can sue and be sued, amass profits, and assume debts.
Your corporation is automatically designated a C entity unless you elect to become an S entity at filing. The differences will affect how your company is taxed and if it can go public, among other consequences. If you are considering this important decision, speak with a knowledgeable attorney at Sparks Law. A Johns Creek C corporations lawyer can discuss why this default option may be best for your business.
After business owners decide on a name and a corporate structure, they file articles of incorporation with Georgia’s Secretary of State and pay a filing fee. The articles disclose the business’s name, address, and purpose. Directors can be named at filing or within 90 days of filing. A skilled attorney can help Johns Creek business owners file these necessary documents when starting a C corporation.
Owners must also name a registered agent who is authorized to accept vital correspondence, such as lawsuits. The incorporator may accept the C designation with no further action, or they can choose an S designation at the time of filing.
S corporations have more restrictions and requirements. This federal tax designation allows the business’s profits and losses to be passed through to shareholders, who claim them on personal income tax returns.
C corporations pay taxes and account for profit and loss at the corporate level, although these corporations can distribute profits to shareholders as taxable dividends. A knowledgeable lawyer at our Johns Creek office can further explain the merits of C corporations.
One of the main advantages of C corporations is that they may acquire as many shareholders as they want from anywhere in the world. This is an advantage when raising capital through equity. Additionally, this designation is necessary to publicly trade on a stock exchange if these actions comply with Security and Exchange Commission rules.
S corporations can have only 75 shareholders. These investors must be U.S. residents and will have to pay Georgia income tax on pass-through profits, even if they do not reside in Georgia. Other advantages to C corporations include:
Profit allocation and federal taxation are just two issues that may arise when choosing a corporate designation. A local attorney could assess a business owner’s vision to determine if a C corporation is the right choice.
If business owners accept the default C corporation designation when chartering the company but later wish to switch to an S corporation, they can do so by filing Form 2553 with the Internal Revenue Service and an additional form with the state. The number of shareholders must comply with S corporation status, and the shareholders must file Form 600 S-CA agreeing to pay Georgia income tax on pass-through profits.
If an S corporation decides to convert to a C corporation, it must also file paperwork with the IRS and designate December 31 as its fiscal year-end. It cannot revert to an S corporation for at least five years. Anyone considering a conversion between S and C designations should consult an experienced corporate lawyer at our firm.
One of the first tasks for a new business owner is to charter the company. Before you undertake this process, you should think about which corporate structure works best for your needs if you decide to charter a corporation.
At Sparks Law, our dedicated attorneys are here to demystify the corporate structure and help you plot your strategy. Call a Johns Creek C corporations lawyer today to discuss how this designation can benefit your business.