Setting up an S Corporation in Georgia
Start your new Georgia S Corporation off right by being sure to get your business set up and incorporated correctly.
At His CPA PC we take the guesswork out of the incorporation process so that you select the right entity to best fit your business financial, operational, tax and legal needs.
Using the below checklist in setting up your new Georgia S Corporation and getting it corporate is essential.
Top 8 Things to Do When Setting up an S Corporation in Georgia
- Be sure that the name is legally available with the Georgia Secretary of State’s Office and consider legally registering your business name and trademark.
- File the initial filing fees for your S Corporation with the Secretary of State’s office and post the legal notice of incorporation in the county’s official legal organ/newspaper.
- After you receive confirmation of acceptance from the Secretary of State, apply for a Federal ID #/EIN on the IRS web site and register with the Georgia Department of Labor and the Georgia Department of Revenue for payroll withholding and sales tax if necessary. Obtain your business license from the county where the business is located unless your Georgia Corporation is located with the city limits of a municipality, in which case you will obtain from that city’s local government.
- Issue the Corporate Bylaws and issue the company stock to its owners. Elect your Board of Directors and Officers and complete the rest of your corporate book.
- File IRS Form 2553 (Election to be a Small Business Corporation) within 75 days of the business incorporation date being sure to have all shareholders of the S Corporation sign and date. For business owners with multiple shareholders have all of them agree to and sign/date a Shareholder Agreement prior to stock issuance.
- Open a corporate bank account being sure to take with you your corporate book, a copy of your business license application and your Federal ID # of your new Georgia S Corporation. Be sure to perform all business in the corporate name.
- Consider using QuickBooks or another suitable accounting program to record and track your business operations being sure to work closely with your CPA to determine and set up the chart of accounts for your new Georgia S Corporation.
- Obtain a referral of a payroll service to handle the processing, filing and paying of all of your payroll needs allowing you to do what you do best. Run your business!
Georgia S Corporations are for business owners who are looking to mitigate their taxes by avoiding the double taxation of a regular corporation. An S Corporation is a “flow through” entity which results in the S Corporation not paying taxes as the business profits are reported on an S Corporation’s individual tax return.
Georgia S Corporation Liability Exposure
A Georgia S Corporation is a legally recognized separate entity, separate from the individual stockholders, providing its owners legal protection from business litigation issues. Many Georgia S Corporations are set up to enable limits on the personal liability a shareholder will otherwise experience. Typically owners will be limited to any tort liability to the extent of their personal investment in their Georgia S Corporation as the corporation will normally serve as a “corporate shield” insulating and protecting its owners from business liabilities and litigation.
Georgia S Corporation Taxation
A Georgia S Corporation will file IRS Form 1120S with the IRS and Georgia Form 600S with the state of Georgia reflecting the business profits and losses (subject to basic limitations/your investment) in your S Corporation. Georgia S Corporations are required to pay all of their active employee owners a fair and reasonable salary given position and profit. There are no income taxes paid when Georgia S Corporation income tax returns are filed as they are paid at the personal level when the owner reports their respective/prorate portion of business profits and losses on their Personal Income Tax Return/IRS Form 1040.
Liability for Owners of Georgia S Corporations
Generally speaking absent any malfeasance, gross negligence, the intent to deceive/fraud or a personal guarantee, Georgia S Corporation owners cannot lose more than the monies they have personally invested in the business. Therefore courts and their judgments generally are not able to pierce through to the individual owners of the corporation. Protection from tort liability is one of the essential reasons many business owners look to set up as an S Corporation.
Rules of Being a Georgia S Corporation
There are four requirements to be a Georgia S Corporation and must be in full effect the entire time that the corporation is an S Corporation. Failure to meet all four of these requirements at all times will automatically convert the corporation to an C Corporation. To be a Georgia S Corporation the business must:
- Have less than 100 shareholders.
- All shareholders have to be citizens of the U.S. or resident aliens.
- Have one class of stock
- Have a calendar year-end.
Raising Funding for Georgia S Corporations
Having your business set up as a Georgia S Corporation will give you competitive advantages over being a sole-proprietorship when approaching your business banker. Being a Georgia S Corporation will give you added credence as someone who can issue and sell stock to prospective owners as well as the pledging of its stock as collateral to secure the loan to your corporation. Ownership of your Georgia S Corporation can be sold in full/in part to potential partners/investors in an effort to raise capital. S Corporations can also have voting and non-voting stock giving owners ability to influence/control the business by controlling all or a majority of the voting stock.
Georgia S Corporation Taxation
- There is no income tax due when the Georgia S Corporation income tax return is filed.
- Georgia S Corporation profits and losses are reflected on the individual owners of the S Corporation based upon their respective ownership percentages.
- Georgia S Corporations are not subject to the “double taxation” of C Corporations.
- Shareholder Distributions are required to be issued on the prorated share of each owner’s corporate ownership.
- Georgia S Corporation owners are able to utilize S Corporation losses (as long as they have a positive tax basis) against other income on their personal income tax return.
- Georgia S Corporation earnings are not subject to self-employment taxes similar to that of a sole proprietorship, LLC or Partnership.
- Georgia S Corporation owners pay FICA and Medicare taxes on their salaries and wages that are required to be reasonable based upon position and profit.
Choosing an Entity Type for Your New Georgia Corporation
Your initial choice of entity is perhaps the most important tax, financial and legal decision you might ever reach. Being well versed in these areas is essential to a wise and prudent decision. Visit http://www.hiscpa.com/article2.html
Tax Effects of Entity Choice When Incorporating in Georgia
Carefully considering the tax effects of your entity choice is essential to getting your business off on the right foot. Being careful to avoid, if at all possible, the double taxation of C Corporations and then selecting the right entity for your business from both a tax and legal perspective is critical. See http://www.hiscpa.com/article6.html
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