The pros and cons of establishing a corporation in Georgia

Understanding the benefits and disadvantages of corporations may help Georgia business owners decide if it is the right structure type for their needs.

For business owners in Georgia, one of the most important decisions they will make is how to structure their companies. Whether established or just starting out, many owners of larger businesses consider forming corporations. Understanding the pros and cons of this structure type may help people decide whether establishing a corporation is the right entity formation for their circumstances.

Pro: Ability to raise capital

The ownership of corporations falls to an individual person or group of people who hold capital stock in the company. In exchange for this stock, shareholders may provide property, money or both. Should the need for funds arise, corporations may sell shares to employees or the public.

Con: Costly and time-consuming to start up

Unlike other options, which may be set up efficiently and with little expense, there is a detailed process for establishing corporations, and several associated fees and costs. For example, those seeking to set up this type of entity may have to pay a $25 fee to reserve their business' name and a filing fee of $100. Further, there is an annual registration fee of $50 for corporations in Georgia.

Pro: Separate taxes

The shareholders of corporations do not include the business' profits on their personal taxes, as the owners of other entity types must do. Instead, corporations are considered separate entities for state and federal tax purposes. Therefore, corporations' net incomes are taxed to the companies themselves, and not to the owners.

Con: Double taxation

At specified periods, shareholders in corporations may be paid out dividends from the companies' profits. While they are not directly responsible for including the businesses' profits on their personal taxes, these divided payments are taxed. Consequently, it creates a double tax, with the profits being subject to taxation as they come in and as they are paid out.

Pro: Limited liability

With some entity types, the owners may be held liable for any legal actions brought against their companies, as well as for any business debts. Corporations, on the other hand, create a level of separation between the shareholders' personal property and the businesses' assets. Therefore, the owners of corporations may not be financially accountable for corporate disputes, legal actions or debts beyond their stock investments.

Con: Added recordkeeping requirements

Corporations are highly regulated entities at the local, state and federal levels. Therefore, there may be more paperwork required for tracking and reporting their profits, losses and operations. Consequently, businesses structured in this way may have to keep more thorough records than other entity types.

The formation types that people in Georgia and elsewhere choose for their businesses may have a significant impact on their operations, success and longevity. Thus, those starting up new companies, as well as those operating long-standing businesses, may find it helpful to consult with an attorney. A legal representative may help them weigh their options and determine which entity structure is best suited for their situations and needs.