Mon 28 Mar 2016 | By:

Pros and Cons to Forming a Georgia Corporation

Pros and Cons to Forming a Corporation

Building a business is truly a dream come true; it’s something that you’ve been chasing all your life and the time has finally come for you to transform the dream into a reality.

Before a business becomes fully operational, you have to go through many legal processes and procedures; one of the most important parts of the startup process is incorporation.

When a business incorporates, both business and business owner are protected by state law; this is highly beneficial for a new entrepreneur like you. To be able to start the process, you need to choose the best business structure for your startup; one of the most recommended is forming a corporation.

Starting a Corporation is an excellent idea because it can give you numerous benefits and advantages along the way. But before you learn how to start a Corporation in Georgia, you need to understand that this legal structure has pros and cons. This article will help you understand each one. Let’s start with the pros!


Pros to Starting a Corporation in Georgia

1) Limited Liability

If you form a corporation, any debts or obligations incurred by your Georgia startup is not your responsibility. The reason for this is because you and your Georgia small business are considered independent and separate entities.

Upon incorporation, the state will award your business with its own rights and it will be allowed to carry out its own transactions. If any problem happens as it operates, it will also be treated fairly through its right for due process.

If a corporation cannot pay its debt, creditors do not have the right to claim payment from the shareholders or owners of the business – it’s as simple as that.

There are exceptions to this rule if there’s an act done by the shareholder that will make him/her personally liable. To understand this better, consult an attorney.

2) Ownership Easily Transferable

By transferring the shares of a corporation, ownership is easily transferable from one person to another. This is highly beneficial, especially during unfavorable and unexpected circumstance.

In a Georgia Corporation, you can transfer your shares by endorsing the share certificate in favor of the new share owner. Also, you may need to meet specific technical requirements of the governing legislation.

3) Tax Advantages

Income tax laws are more lenient on businesses who are operating as corporations other than those who are under sole proprietorship, partnership and other business structure. Given that your Georgia Corporation qualifies as a small business and has active income, it can benefit from several small business deductions and income taxes at a reduced rate.

Also, corporations have restrictions when it comes to reporting capital losses. Because of these restrictions, there is better business transparency, thus, corporations are not subjected to strict audits compared to businesses managed under sole proprietorship.

Corporations are able to enjoy more tax savings compared to other legal entities.

4) Perpetual Existence

When you incorporate, your small business is considered a separate legal entity; it is independent from its owner and shareholders.

Your corporation can have perpetual existence because in the state law of Georgia, and it is allowed by law to continue its operations even when ownership changes. This situation, ensures the continuity of the business even when it is no longer owned by the same founders.

5) Organized Management Structure

Unlike other entities, a corporation is required to form an organizational structure. By forming a well-established management structure, the responsibilities and tasks are clearly defined and overlapping is prevented.

With specific job descriptions, everyone is aware of their role in the company; this includes the Board of Directors, shareholders, management team down to employees. Corporations have been found to succeed more because of this factor; the business operates in an organized manner and employees work harmoniously hastening success.


Cons to Starting a Corporation in Georgia

1) Costly

As with any government process, forming a Georgia Corporation is quite expensive. It is also challenging and time-consuming so you need to have a lot of experience as you go through the process.

You have to prepare financially, as there are numerous government fees such as name reservation, certified records and professional fees which you need to pay to organize a corporation.

2) Subject to Greater Regulation

Unlike an LLC, corporations are subject to strict government regulations which may add to the overall cost of forming your Georgia Corporation. You need to comply with a lot of requirements and regulations like deciding to sell shares or raise capital.

Because of the many advantages and perks that comes along with running a corporation, the state also sees to it to regulate it appropriately.

3) Thorough Record Keeping

To continue its business operations, a corporation needs to keep an organized record of its shareholders, directors and officers. You also need to maintain records of any changes in the management structure, transactions and debts acquired by your Georgia small business.

Some of these documents may also have to be opened for public inspection so you need to understand this ahead of time. An example of a document open to public inspection is the list of shareholders, although there are certain restrictions that may apply to this.

4) Risk for Double Taxation

The risk for double taxation depends on the special rights and some restrictions attached to the shares and how the income or profit of the business is paid to its shareholders. When a corporation pays taxes using its profits, the shareholder can be subjected to taxation based on the profits paid out.

5) Shareholder and Director Liability

While there’s a general rule saying that any acts or failures committed by a corporation are not the liability of directors and even shareholders, there are certain situations that are exceptions to this rule.

There are times when directors or shareholders engage in activities or fail to take certain measures that will jeopardize their liability protection. Without proper guidance and legal advice, the advantages of using a corporation is lost.

Every business has different needs and requirements; as for your startup, you should also consider this before finally deciding on a business structure. A Georgia Corporation may be or may not be for you, so you need to evaluate what’s good for your business so you can make a well-informed decision.

The world’s largest businesses are corporations and while the brains behind them are mainly responsible for their success, being a corporation may have partly contributed in their current state. Your Georgia small business can also be a huge success if you take the necessary steps to legally register it before the state. If you feel like a Georgia Corporation is best, go for it!

Please be aware that this is not legal advice – it is solely an informational guide. For details on how to form a Corporation in Georgia or starting a business in Georgia, a lawyer has the best answers for you.

About Ryan James

Half hardworking hermit, half avid adventurer, Ryan founded Startup Savant to simplify entrepreneurship and pay it forward by donating a portion of all revenue to support children's education via