Issues Relating To Organizational Forms And Taxation. U.S.A. - GEORGIA Alston & Bird LLP

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1 Issues Relating To Organizational Forms And Taxation U.S.A. - GEORGIA Alston & Bird LLP CONTACT INFORMATION Jeffrey C. Glickman/ Edward Tanenbaum/ Susan J. Wilson Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, GA J. Glickman: / E. Tanenbaum: / S. Wilson: jeff.glickman@alston.com/ edward.tanenbaum@alston.com/ susan.wilson@alston.com 1. Identify the forms of organization available in your jurisdiction and discuss the advantages and disadvantages of each (eg., corporation, limited liability company, partnership, limited partnership, co-operative, etc.), describing which type of legal entity is mostly used or is of special interest, namely by foreign investors. For-profit Corporation (FP Corp). Advantages. Shareholders (owners) can avoid personal liability for the debts and liabilities of the corporation, and the entity may have perpetual existence. Disadvantage. Profits are taxable to the corporation and may also be taxable to the shareholders when distributed (so-called double taxation ). Non-For-Profit Corporation (NFP Corp). Advantages. Directors and officers are rarely personally responsible for the NFP Corp s debts and liabilities. Disadvantage. Available only for non-profit ventures. Limited Liability Company (LLC). Advantages. Members (owners) can avoid personal liability for the debts and liabilities of the LLC, and the entity may have perpetual existence. Also, the LLC does not pay tax on its profits. Tax obligations are passed through to the members. General Partnership (GP). Advantages. A partnership is simple to form and it avoids double taxation. Disadvantage. Partners may be held personally liable for the debts and obligations of the partnership.

2 Limited Partnership (LP). Advantages. Avoids double taxation, like a partnership. However, it also has two classes of partners, general and limited. The general partners may be held liable for the debts and liabilities of the partnership, while the limited partners may not. A limited partnership may elect to be a limited liability partnership, which would provide limited liability for the general partners. Disadvantages. General partners have unlimited liability. Note. There are also professional corporations and professional associations available for persons who practice certain specified professions. In such entities, the shareholders and/or controlling persons are all licensed to practice the same profession, and the entity provides services only in such specified profession. These professions may include accounting, architecture, chiropractic, dentistry, professional engineering, land surveying, law, pharmacy, psychology, medicine and surgery, optometry, osteopathy, podiatry, veterinary medicine, registered professional nursing or harbor piloting. It is also possible to form a cooperative. These are formed for the purpose of providing some kind of benefit to the members, rather than a return on investment. This form is often used by a collective of producers, such as farmers. The entities most likely of interest to foreign investors are FP Corps and LLCs. 2. Are there attributes of the form that you consider unique to your jurisdiction? No, there are no attributes of an FP Corp, NFP Corp, LLC, GP or LP that are unique to Georgia. 3. Describe the management and governance structure for each organizational form. FP Corp. Owned by shareholders. Managed by a board of directors that is elected by the shareholders, and by officers who are appointed by the board. A corporation must have articles of incorporation (filed with the Georgia Secretary of State s office) and bylaws, both of which documents must contain certain provisions required by Georgia law. These governing documents provide for governance matters such as how and when directors will be elected, which officers the corporation will be required or permitted to have, and when and how meetings of shareholders and directors will be held. NFP Corp. Has no shareholders. May have members, but is not required to do so. Managed by a board of directors that is elected either by the members or by the existing board, and by officers appointed by the board. LLC. Owned by members. Managed either by its members or by managers who are appointed by the members. An LLC must have articles of organization that are filed with the Georgia Secretary of State s office. Typically, the members will also execute an operating agreement that defines the rights, duties and liabilities of the members, and managers if applicable. Georgia law does not require an operating agreement. In the absence of such an agreement, or if an agreement is silent about a particular matter, the Georgia LLC code will apply.

3 GP. No formal organizational document, filing or agreement is required. Each partner has a right to participate in management, as well as a right to share in the profits of the partnership. LP. Must file a certificate of limited partnership with the Georgia Secretary of State s office, which will identify the general partners. Governance is generally pursuant to a limited partnership agreement, which identifies the limited partners and specifies respective rights and duties. 4. Is there a residency requirement for management or owners? In particular, are there restrictions or prohibitions on foreign investors to perform, or have interests in, specific activities? There are no residency requirements, however there are requirements regarding engagement in certain professions, as outlined in question Describe the extent to which management and owners are exposed to liability. FP Corp. No personal liability for the debts and liabilities of the corporation. NFP Corp. No personal liability for the debts and liabilities of the corporation. LLC. No personal liability for the debts and liabilities of the LLC. GP. Partners may have personal liability for the debts and obligations of the partnership. LP. General partners may be personally liable for the debts and liabilities of the partnership, while the limited partners may not. 6. Ownership interest: (i) how is it represented? (ii) is it transferable?; and (iii) is there a minimum number of owners? FP Corp. (i) Ownership represented by shares of stock; (ii) stock is transferable, subject to any agreement to the contrary among the shareholders; (iii) no minimum number of shares or shareholders. NFP Corp. There is no ownership; control is vested in members or board of directors. LLC. (i) Ownership represented by membership interests; (ii) membership interests are transferable, subject to any agreement to the contrary among the members; (iii) no minimum number of members. GP. (i) Ownership represented by partnership interests; (ii) partnership interests are not transferable without consent of other partners; (iii) there must be at least two partners. LP. (i) Limited partners have limited partnership interests; (ii) limited partnership interests are transferable if the limited partnership agreement permits it or the other partners consent; (iii) there must be at least one general partner and one limited partner.

4 7. Is there a minimum capitalization? Copyright Lex Mundi Ltd There is no minimum capital required to form a FP Corp, NFP Corp, LLC, GP or LP. 8. Is there a security that can be issued to the public? FP Corp. Securities can be issued. NFP Corp. Securities generally cannot be issued. LLC. Securities can be issued. GP. Securities generally cannot be issued. LP. Securities can be issued. 9. Can the form incur debt, or grant security for debt? Yes, under Georgia corporate law, a FP Corp, NFP Corp, LLC, GP and LP may lawfully incur debt and grant security for debt. 10. What is the duration of the form? Can it be renewed? FP Corp. As stated in articles of incorporation; may be perpetual. NFP Corp. As stated in articles of incorporation; may be perpetual. LLC. The members may specify a term in the articles of organization or an operating agreement, and that term may be perpetual. Absent a statement to the contrary, the LLC will dissolve 90 days after an event of dissociation with respect to the last remaining member. GP. Death or withdrawal of any partner dissolves the general partnership. LP. Upon the occurrence of events specified in the limited partnership agreement. 11. Describe the process, customary time period and approximate cost of establishing the form. FP Corp. Articles of incorporation must be filed with the Georgia Secretary of State, which can be done on a same-day basis. The filing fee is set by statute and is currently $100. In addition, the corporation must publish a notice of the filing of articles in a newspaper that is the official organ of the county where the initial registered office of the corporation is to be located or that is a newspaper of general circulation within such county meeting certain statutory criteria. The cost of such publication is set by statute and is currently $40. The corporation must have an initial board of directors, adopt bylaws, appoint a registered agent within the state of Georgia, and appoint the officers required by the bylaws.

5 NFP Corp. Articles of incorporation must be filed with the Georgia Secretary of State, which can be done on a same-day basis. The filing fee is set by statute and is currently $100. In addition, the corporation must publish a notice of the filing of articles in a newspaper that is the official organ of the county where the initial registered office of the corporation is to be located or that is a newspaper of general circulation within such county meeting certain statutory criteria. The cost of such publication is set by statute and is currently $40. The corporation must have an initial board of directors, adopt bylaws, appoint a registered agent within the state of Georgia, and appoint the officers required by the bylaws. LLC. Articles of organization must be filed with the Georgia Secretary of State, which can be done on a same-day basis. The filing fee is set by statute and is currently $100. Also, the LLC must appoint a registered agent within the state of Georgia. GP. No state filing or organizational meeting of the partners is required to form a general partnership in Georgia. LP. A certificate of limited partnership must be filed with the Georgia Secretary of State, which can be done on a same-day basis. The filing fee is set by statute and is currently $100. Also, the limited partnership must appoint a registered agent within the state of Georgia. 12. Are there requirements for the government (central or local) to be part of a project or investment vehicle or receive part of the profits arising therefrom (apart from taxes)? No. 13. For what taxes is the form liable? NOTE RESPONSE WILL BE SENT BY SEPARATE . THERE IS A PROBLEM WITH THIS BOX ON THE FORM. 14. What is the tax treatment of payments to foreign owners? FP Corp. Federal Income Tax All foreign persons are subject to tax at 30% on dividends paid by a US corporation to foreign shareholders unless tax treaties reduce or eliminate US tax on foreign income. Dividends paid to US shareholders are also subject to further US tax. An S-corporation is not available for foreign owners. GA Taxation: Dividends, interest, or royalties received by a foreign corporate shareholder may be taxed by Georgia if the foreign corporate shareholder is subject to Georgia corporate income tax (see answer to question 13). The foreign corporate shareholder may be entitled to a deduction for dividends received on its Georgia corporate income tax return. LLC, GP, LP. Federal Income Tax Generally, no tax on distribution to foreign partners ( passthrough taxation ). Advance withholding taxes apply on income earned by foreign partners. If an LLC is taxed as a corporation, FP Corp. rules apply.

6 GA Taxation: Georgia also requires withholding by entities treated as a pass-through entity (e.g., S-corporations, partnerships, and LLCs classified as partnerships for federal income tax purposes) on distributions to non-resident members and/or partners, as well as on payments to non-resident owners in connection with the sale by the non-resident of real property located in Georgia. 15. Is there a tax treatment which would impact foreign owners differently than owners resident in the jurisdiction? Generally, there is no difference between the tax treatment of foreign and domestic owners, as the Commerce Clause and Equal Protection Clause of the U.S. Constitution prohibit states from discriminating against out-of-state taxpayers.