In Georgia, you may incorporate a S corporation (S corp) by founding a limited liability company (LLC) or a corporation and then choosing S corp status from the IRS when applying for an EIN.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
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In our How to Start a S Corp in Georgia tutorial, we’ll walk you through the steps.
What is the definition of a Georgia S Corporation?
For federal, state, and local tax purposes, a S corporation (S corp) is a tax categorization under Subchapter S Chapter 1 of the IRS (Internal Revenue Service) law. Although a S corp is not a legal company entity in and of itself, you may elect S corp status after forming an LLC or a corporation to take advantage of its tax benefits.
S corporations are not taxed at the corporate level (except in some states). Instead, distributions are taxed on the shareholder’s individual tax return. Because S corp owners are paid workers, they only pay self-employment taxes and income tax on the salary component of their earnings. The net earnings are distributed to the owners (owing to the pass-through taxes of a S company). S companies pay just income tax on distributions, as contrast to LLCs, which pay both taxes on distributions and C corporations, which are taxed both at the company and shareholder levels. S corporations combine the pass-through taxes of an LLC with the avoidance of double taxation of a corporation.
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S company rules and regulations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a S Corporation the Best Business Structure for You?
S Corporation Prerequisites
The IRS requires organizations that choose S corporation status to have the following:
Have no more than 100 stockholders.
Are domestic limited liability companies or corporations used?
Issue just one kind of stock.
Shareholders are either US citizens or permanent residents.
Private persons own them.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
Forming a Georgia S Corp
There are two major methods to form a S corporation:
When requesting your employee identification number, organize an LLC and obtain S corp tax status from the IRS (EIN)
By creating a company and applying to the IRS for S corp status
We do not advocate forming a company with the S corp tax status since it undermines all of the advantages of forming a corporation.
Forming an LLC and Choosing S Corp Status in Georgia
To form an LLC and elect S corp status, follow these five simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit the Articles of Incorporation.
Create an Operating Agreement in Step 4
Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in Georgia is deciding on a name.
Make sure your name conforms with Georgia naming regulations and is readily searched by prospective customers.
1. Follow the Georgia LLC naming guidelines:
Your name must include one of the words or acronyms listed below: limited liability company, limited company, L.L.C., LLC, L.C., or LC. It is acceptable to shorten the term “limited” to “ltd.” and the phrase “business” to “co.”
Your name must be distinct from that of all other organizations registered with the Georgia Secretary of State.
Your name cannot include more than 80 characters.
To use the phrases insurance, assurance, surety, fidelity, reinsurance, reassurance, or indemnity, you must get permission from the Georgia Office of Insurance and Safety Fire Commissioner.
To use one of the following terms, you must get permission from the Georgia Department of Banking and Finance: bank, banc, banque, banker, banking company, banking house, bancorp, bankruptcy, credit union, savings & loan, trust, or trust firm.
To use the terms “college” or “university,” you must first get permission from the Georgia Nonpublic Postsecondary Education Commission.
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
For additional information, see the Georgia state legislation on LLC name rules.
2. Does the name exist in Georgia? You may check the Georgia Secretary of State website’s eCorp company search to discover whether your preferred LLC name is available.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select a Georgia Registered Agent
Your Georgia LLC must have a registered agent.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Articles of Organization, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Step 3: Submit the Articles of Organization for the Georgia LLC.
To properly register an LLC, the Georgia Articles of Organization are utilized.
Step 4: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.