Legal Question in Business Law in Georgia

Re: Subchapter S

A statutory close corporation (SCC) is a corporation organized under Georgia law with fewer than 50 shareholders that includes a statement in its articles of incorporation that it elects to be a statutory close corporation, pursuant to O.C.G.A. 14-9-902. A SCC operates under the Georgia SCC laws beginning at 14-2-901. Such corporations have statutory restrictions on the right of shareholders to transfer shares, may operate without a Board of Directors and without the need for an annual meeting. The intent is to make it easier for small corporations to operate without all the formalities found with non-close/regular corporations. To fully understand a SCC, you must read the Georgia law that governs them.

An S-Corporation is a corporation (statutory close or regular) or an LLC that elects to be treated for tax purposes under the rules of SubChapter S of the Internal Revenue Code. While this is a federal tax election - it is also valid for state tax law purposes. With some exceptions, the S-Corp pays no income tax on business profits. The intent is to enable the S-Corp to pass all income, loss and other tax attributes from business operations to it's shareholders in proportion to the percentage of stock ownership. A non-electing corporation which can be either a SCC or regular is generally referred to as a C-Corporation. Such corporations are separate taxable entities - the corporation pays tax on its income at corporate rates rather than passing the incidence of taxation to it's shareholders. Hope this helps!

Re: Subchapter S

Your question comparing a Subchapter S corporation with a close corporation evidences a basic misunderstanding of the two concepts.

A �close corporation� is a type of corporation under Georgia law that has certain legal qualities that differ from other forms of entities permissible under Georgia law.

A �Subchapter S� corporation is a federal tax classification that allows certain tax treatments for small corporations (based on the number of shareholders and other qualification.)

A close corporation could also be a Subchapter S corporation, but then again, it might not. It all depends on whether or not the actual close corporation in question meets the federal qualifications to be treat as a Subchapter S corporation.

Conversely, a regular corporation under Georgia law can also be a Subchapter S corporation as long as the federal qualifications for such treatment are met.

This answer, though responsive to the question, is general in nature. It is not designed to be and should not be relied on as your sole source of information when analyzing and resolving a specific legal issue. Each fact situation is different; the laws are constantly changing. If you have specific questions regarding a particular fact situation, I urge you to consult with competent legal counsel.