What is a Georgia S Corporation?
An S corporation (S corp) is a tax classification under Subchapter S Chapter 1 of the IRS (Internal Revenue Service) code for federal, state, and local tax purposes. Although an S corp is not a legal business structure by itself, you can elect an S corp status after starting an LLC or a corporation to benefit from its tax advantages.
S corps are not taxed at the business level (except in some states). Instead, shareholders are taxed on distributions on their individual tax return. Since S corp owners are salaried employees, they only pay both self-employment taxes and income tax on the salary portion. The net profits pass down (due to an S corp’s pass-through taxation) to the owners in distributions. Distributions in S corps only pay income tax as opposed to LLCs, which pay both taxes on distributions, and C corporations which are taxed at the business level and again at the shareholder level. S corps combine an LLC's pass-through taxation and avoid a corporation's double taxation.
Factors to Consider Before Starting an S Corp
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation requirements and restrictions
- Why an LLC is the best structure for the S corp tax status
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Requirements and Restrictions
The IRS requires that businesses that elect S corp status have the following:
- 100 shareholders or less
- Are domestic corporations
- Issue only one class of stock
- Shareholders are US citizens or permanent resident aliens
- Are owned by private individuals, certain trusts and estates
- All shareholders agree on S corp status
- Record minute meetings
- Are not owned by business entities such as partnerships, LLCs, corporations, or some trusts
Why an LLC Is the Best Structure for the S Corp Tax Status
As entrepreneurs, we believe that starting an LLC is the best way for forming an S corporation because any advantages of forming a corporation are negated by S corp restrictions. LLCs are also easier to maintain than corporations.
Are S Corp Tax Advantages Right for You?
You need to know if the S corp tax status versus a default LLC tax status will be better for your business. To fully understand the tax advantages of an S corp, read our LLC vs. S corp guide.
How to Form a Georgia S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend not starting a corporation with the S corp tax status because the S corp negates all of the benefits of a corporation.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Georgia
Starting a Georgia LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Collective to do it for you.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Articles of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Georgia.
Be sure to choose a name that complies with Georgia naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Georgia LLC:
Your name must contain one of the following terms or abbreviations: limited liability company, limited company, L.L.C., LLC, L.C., or LC. It is permitted to abbreviate the word "limited" as "ltd." and the word "company" as "co."
Your name must be distinguishable from all other entities on file with the Georgia Secretary of State.
Your name cannot exceed 80 characters.
You must get approval from the Georgia Office of Insurance and Safety Fire Commissioner to use one of the following words: insurance, assurance, surety, fidelity, reinsurance, reassurance, or indemnity.
You must get approval from the Georgia Department of Banking and Finance to use one of the following words: bank, banc, banque, banker, banking company, banking house, bancorp, bankruptcy, credit union, savings & loan, trust, or trust company.
You must get approval from the Georgia Nonpublic Postsecondary Education Commission to use the words “college” or “university."
Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
You can find state-specific LLC naming guidelines on the Georgia Secretary of State website.
You can also read the Georgia state statute about LLC naming guidelines for more information.
2. Is the name available in Georgia? You can use the eCorp business search on the Georgia Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Find a Domain Now
Step 2: Choose Your Georgia Registered Agent
You must elect a registered agent for your Georgia LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Hire a professional service provider like Collective for all your S corporation needs, including:
- S corp formation or to convert an existing business
- Registered agent services and obtaining an EIN
- Managing your monthly accounting (payroll, bookkeeping)
- Personalized service with a back office team
- Keeping your business compliant with regulatory obligations
- Helping you find potential business tax savings, and more.
Connect with Collective to learn more!
Step 3: File the Georgia LLC Articles of Organization
The Georgia Articles of Organization is used to officially register an LLC.
OPTION 1: File Online With Georgia eCorp
- OR -
OPTION 2: File Form CD 030 by Mail or in Person
State Filing Cost: $100, payable to the Secretary of State (Nonrefundable)
Corporations Division 2
Martin Luther King Jr. Dr.
SE, Suite 313 West Tower
Atlanta, GA 30334
Note: You must file Form CD 231: Transmittal Information Form along with your Articles of Organization
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our Georgia LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Georgia S Corp Election Deadline - Filing Form 2553
- New Business (LLC or corporation)
- File Form 2553 2 months and 15 days or before after starting your business
- Existing Businesses (LLC or corporation)
- For S corp status the following year, file Form 2553 anytime the year before (e.g. file form in 2022 anytime to be taxed as S corp in 2023)
- Existing Businesses Electing S corp status in the same year
- File Form 2553 within the first 2 months and 15 days of the same year or before (meaning, you must file between January to March 15 and no later. If you file by March 16 or after, you'll miss the deadline and have to wait for the following year)
Steps to Take After Setting Up a Georgia S Corp
Start a Georgia S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation for which an LLC or a corporation can apply.
Is an S corp an LLC?
No. An S corp is a tax designation for which an LLC or a corporation can elect.
How do you form an S corp?
You can form an S corp by filing Form 2553 with the Internal Revenue Service (IRS).
What are the requirements for an S corp?
S corps must meet four requirements:
- They can have no more than 100 shareholders.
- All shareholders must be private individuals (not other business entities).
- Shareholders cannot be nonresident aliens.
- The business may only issue one class of stock-this means all members must have the same distribution amount.
What are the benefits of an S corp?
Owners of S corps are considered employees of their company and can save thousands of dollars on self-employment taxes as a result.
Are taxes for LLCs and S corps the same?
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.
What is a reasonable salary for an S corp?
Unlike the default LLC business structure, in which owners must pay self-employment tax on all of the company’s profits, owners of S corps are considered employees of the business and only have to pay self-employment tax on a salary they receive. Any other money they take from the company’s profits in the form of disbursements isn’t subject to self-employment tax.
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
What is a distribution?
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
What is pass-through taxation?
Pass-through taxation is a system of taxation that generally applies to sole proprietorships, partnerships, LLCs, and S corps. In this system, the profits or losses of the business are not taxed at the business level. Instead, they pass through to the owners’ personal tax returns and are taxed at each owners’ personal income tax rate.
What is the S corp tax rate?
There’s no corporate tax rate for S corps. Instead, owners of S corps pay personal income tax on the company’s profits. This rate depends on each owner’s personal income tax bracket.
Can I still use my DBA name if I elect to be an S corp?
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.