Georgia S Corporation Advantages and Disadvantages
Georgia S Corporation advantages and disadvantages
Georgia S Corporation Advantages and Disadvantages - The 2007 Index gives Georgia's tax structure a slightly above-average score, placing it 19th best nationally and 3rd in its region. Georgia received excellent marks for its corporate tax system and its sales tax, while receiving less competitive marks for its individual income tax, unemployment insurance tax and taxes on wealth.
Georiga S Corporation:
S Corporation status is recognized by the State of Georgia as long as all shareholders are subject to income tax in the state. Non-resident shareholders must execute a consent agreement to pay Georgia income tax on their portion of the income in order for the S corporation to be recognized for Georgia purposes. A separate state election from the federal election is not required.
License Requirements
Georgia requires most businesses to obtain a license and pay a fee if operating in the state. Please check with the state to make sure your business is complying with the license requirements for your particular profession.
S Corporation is a corporation with 75 or fewer shareholders,that has elected and qualified for a special tax status with the Internal Revenue Service (IRS).
A S Corporation is a separate legal entity, the corporation finances and records are established and maintained completely separate and distinct from the finances and records of the stockholders. Through a resolution adopted at a stockholders meeting held in accordance with the bylaws of the corporation, one or more officers or employees of the corporation are authorized to conduct business on behalf of the corporation. The resolution typically includes an authorization with specified limits to borrow and repay funds as needed for business operations. Credit arrangements are made in the name of the corporation with loan documents signed by the authorized person or persons after the lender has received a certified copy of the authorizing resolution.
The main advantage associated with the S Corporation is that the income passes through to the shareholders, therefore avoiding a perceived double taxation of a C-Corporation.
Should I form a Georgia S Corporation?
The S Corporation:
An "S Corporation" is a corporation that elects to be taxed under Subchapter S of the Internal Revenue Code (enacted in 1958 and periodically amended) and receives IRS approval of its request for Subchapter S status. As a legal entity (an artificial person), the S Corporation is separate and distinct from the corporation's owners (the stockholders). Under Nebraska incorporation law, there is no distinction between a C corporation and an S corporation.
Georgia S Corporation Advantages and Disadvantages
Advantages of the S
Corporation:
The independent life of the corporation makes possible its continuation, and the relatively undisturbed continued
operation of the business regardless of incapacity or death of one or more stockholders.
Fractional ownership shares are easily accommodated in the initial offering of stock.
The purchase, sale, and gifting of stock make it possible to have changes in ownership without disturbing the corporation's ability to conduct business.
The requirement that the corporation's finances and records be separate from the finances and records of stockholders
reduces the risk of unrecognized equity liquidations.
With only a few exceptions, under the Subchapter S election for taxation as a partnership the S corporation pays no
income taxes and corporation income or loss is passed through direct to the stockholders.
To the extent the corporate shield is maintained and other investments and savings of the stockholders are not at risk, the personal life of stockholders is simplified.
The annual meetings of stockholders and consultations with legal counsel can provide stimulus for improved communication
within the stockholder group (often a family group) and can provide more comprehensive guidance for management.
Depending on the corporation's business record and the policies and practices of prospective lenders, access to credit
and the ability to secure needed resources may be improved.
Earnings representing "return on investment" (interest, rental payments, etc.) are not subject to self-employment tax as long as stockholder-employees receive adequate compensation for labor and management of the business.
Disadvantages of the S Corporation:
Lenders may require personal guarantees from corporate officers as a condition of supplying credit, thus negating the
limitation of liability.
Conflicts or disagreements among the stockholders may immobilize decision making.
Restrictions on the sale of stock and/or buy-back agreements included in the bylaws may prevent minority stockholders
from being able to recover the value of their investment in the corporation.
Through the processes of gifting and inheritance, stock ownership can become divided among many persons who are not
active in the business and they may become a voting block that does not support needs and decisions believed desirable by
managing stockholders.
Over time, corporation paid benefits for stockholder-employees may become costly and exceed the ability of the business
to pay.
Employment benefits such as life insurance, health insurance, and housing costs are taxable income to stockholder
employees with 2 percent or more stock ownership and to employees who are directly related to persons owning 2 percent
or more of the corporation stock.
If appreciated assets are owned by the corporation and the corporation is dissolved, significant income taxes on the
appreciation amount will be generated.
