S Corp Restrictions in Georgia

By Thomas King

Eligible Georgia business can elect S corporation status for purposes of federal taxation. The benefit of making the election is that it allows your business to avoid paying income taxes at the corporate level. Instead, the profit of the business passes through to each shareholder, who declares the income on his personal tax return. The business's profits are therefore taxed only once. Certain restrictions prevent every business entity from electing to be treated as an S corporation.

Choice of Entity Requirements

In order to become an S corporation in Georgia, an entity must first be a domestic corporation organized in Georgia. For S corporation purposes, "domestic corporation" includes joint-stock companies, insurance companies and associations. "Domestic corporation" does not include members of an affiliated group of corporations, current or former domestic international sales corporations, and insurance companies that are taxed under Subchapter L of the Internal Revenue Code.

Shareholder Requirements

A Georgia S corporation can have no more than 35 shareholders. Moreover, the shareholders are limited to individuals, estates, and trusts, excluding foreign trusts and trusts that qualify as an IRA. Because of the numerical limitation, the way shareholders are counted is extremely important. For purposes of determining the number of shareholders for an S corporation, a husband and wife and their estates are counted as one shareholder, even if they own stock separately.

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Class of Stock Requirements

A Georgia entity that has more than one class of stock does not qualify as an S corporation. An entity has one class of stock if all outstanding shares of stock -- stocks held by investors, including restricted shares owned by company officers and insiders, as well as common shares held by the public -- give identical rights to distribution and liquidation proceeds. Note that differences in voting rights do not create additional classes of stock for S corporation purposes. Thus, if one stock includes voting rights and another stock does not, they will still be treated as one class of stock, assuming they confer identical rights to distribution and liquidation proceeds.

Filing Requirements

In order to elect S corporation status in Georgia, an eligible domestic corporation must fill out Form 2553 and mail or fax it to the Internal Revenue Service Center, Ogden, UT 84201. The fax number is (801) 620-7116. Note that the form must be filed before the sixteenth day of the third month of the tax year in order to take effect during that tax year.

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S Corporation Regulations



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How Do I File S-Corp Taxes in Georgia?

Certain small businesses that operate as corporations or limited liability companies can elect to be treated as S corporations for federal income tax purposes. Many states, such as Georgia, recognize IRS designations and require the filing of an S-corporation state tax return by businesses that make the federal election. When your business files taxes as an S corporation in Georgia, revenue earned in Georgia must be separated from its other revenue.

S Corporation Structure

An S corporation is a tax designation that a business must apply for with the Internal Revenue Service. Used for small businesses, the benefit of the S corporate designation is that it allows the business to be taxed as a partnership. To apply for S corporate status, the business must submit a completed Form 2553 within 2 months and 15 days after the beginning of the first tax year that it wants to be treated as an S corporation.

Can You Fill Out a 2553 Before the Articles of Incorporation?

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business can submit this form, it must first qualify for S corporation status and must file articles of incorporation with the state to incorporate the business.

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