How to Form a California Corporation

To streamline this process, we've outlined six straightforward steps for forming your California corporation:

Step 1: Select a Unique Name for Your California Corporation

‍To begin your journey, choose a distinct name for your corporation that is not already in use by another entity. As a corporation, you must incorporate terms like "Incorporated," "Corporation," or "Limited" in your formal name, including abbreviations like "Inc." or "Co." Please adhere to state guidelines when naming your California company to avoid using misleading words or restricted terms, which may require specific licenses for certain industries, such as law firms.

Verify Name Eligibility

‍Ensure your chosen name's availability by checking the California Secretary of State website. If it's available, consider reserving it using the Name Reservation Request form, requiring a $10 filing fee. You can submit this form by mail or in person at the California Secretary of State's office.

Consider a "Doing Business As" (DBA) NameExplore the option of operating your corporation under a different name by obtaining a DBA name certificate from the appropriate county clerk's or recorder's office.

Check the Federal Trademark DatabaseTo avoid trademark conflicts, verify if your desired business name is already trademarked federally using the United States Patent and Trademark Office (USPTO) database.

Register a State TrademarkAlthough not mandatory in California, consider trademarking your corporation's name to secure legal rights. File a trademark application online or by mail, with a fee of $70 per classification.

Step 2: Appoint Directors and a Registered Agent

‍California corporations must appoint directors to oversee business operations. Directors, part of the board of directors, make decisions and adhere to corporate bylaws. Ownership and directorship are not mutually exclusive, allowing flexibility in structuring your corporation. California mandates a minimum of three directors unless there are fewer shareholders, and there should be an equal number of directors and shareholders. Directors have no specific age or residency requirements.

Select a registered agent (Agent for Service of Process) for your corporation, responsible for receiving legal and governmental documents. Your agent must have a physical street address in California, be available during regular business hours, and cannot be the corporation itself.

Step 3: File the California Articles of Incorporation

‍Submit your Articles of Incorporation to the California Secretary of State, outlining your business's name, registered agent details, address, number of shares of stock, and the names and signatures of incorporators. Filing can be done online, by mail, or in person, with possible fees for in-person submissions.

Step 4: Draft Corporate Bylaws and a Shareholder Agreement

‍While not mandatory, having corporate bylaws is advisable for clarity and dispute resolution. Create corporate bylaws to establish regulations for your California corporation, offering guidance in case of disagreements and ensuring transparency. Shareholder agreements should outline expectations, involvement, monetary requirements, voting rights, and other guidelines tailored to your corporation's structure.

Step 5: Issue Shares of Stock

‍Even single-owner corporations require shares of stock, and record-keeping is essential for transparency. Public companies must provide financial information according to U.S. Securities and Exchange Commission regulations, while private companies follow state requirements and file an annual Corporate Disclosure Statement.

Step 6: Obtain an Employer Identification Number (EIN) and Address Tax Requirement's

‍An EIN from the IRS is essential for tax purposes, and it's obtained online, by fax, or mail. Ensure your corporation complies with the $800 minimum franchise tax and other tax obligations in California.

Apply for Necessary Business Permits or Licenses

‍California businesses must acquire a general business license at the local level, with additional industry-specific licenses. Research federal, state, and local requirements to identify the necessary licenses and permits.

Submit Your Corporation's First Report

‍File the Statement of Information (Form SI-550) within the first 90 days of incorporating and annually thereafter during a specific six-month filing period. The filing fee is $25, and you can submit it online or by mail.

Cost of Starting a California Corporation

‍Starting a California corporation involves minimal fees, except for the $800 minimum franchise tax and the $25 Statement of Information filing fee. Expedited filing incurs additional costs.

Starting a California corporation offers various benefits, including asset protection, official business recognition, national and international brand recognition, and the issuance of stock to investors. However, potential disadvantages include double taxation, investor expectations, and compliance with regulations.

Taxation of California Corporations

‍C corporations are taxed at an 8.85% rate on earned income in California, while S corporations pay 1.5% income tax with a minimum of $800. Exceptions apply for first-year filers, certain industries may experience different tax rate. Nonprofits are exempt from income taxes, but their employees pay income tax on their earnings. Payroll taxes apply to corporations, with no state tax loopholes available in California.

How We Can Assist

For a hassle-free incorporation process, consider seeking assistance from experienced individuals well-versed in California corporate law. They can guide you through the process, ensuring a smooth transition into the corporate world.

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Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. Seek the counsel of a licensed professional for specific questions related to these topics.