Starting a Corporation in California | What You Need to Know


Steve Bennett
Steve Bennett
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Start a Corporation in California

In California, starting a corporation can benefit entrepreneurs looking to establish a separate legal entity for their business. Incorporating your business provides liability protection for its owners and offers potential tax benefits and a professional image. This comprehensive guide will walk you through Starting a Corporation in California, from choosing a corporate name to fulfilling ongoing compliance requirements. Some people consider starting a corporation since it has advantages and benefits rather than Starting an LLC in California.

Webinarcare Editorial Team will help you gain knowledge in starting a corporation with thorough research and market study. It would be best to cross-check all the factors in this article before forming a corporation.

What is a Corporation in California?

A corporation in California is a business organization recognized as a separate legal entity from its owners, also known as shareholders. When a corporation is formed, shareholders invest capital by purchasing shares of stock and, in return, become partial company owners. The corporation is managed by a board of directors elected by the shareholders to oversee the company’s operations and make important decisions. Corporations in California are required to have at least One directors. One of the main advantages of a corporation in California is that it provides limited liability protection to its shareholders, meaning their assets are not at risk if the corporation incurs debt or is legally sued.

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Common Types of Corporations

Before you start with a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

C-Corporation

C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.

S-Corporation

S-Corporation in California is set up similarly to a C-corporation but has different tax implications and owner limits. An S-Corporation has no more than 100 stockholders and is not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

Nonprofit Corporation

Religious, educational, and charity institutions frequently use nonprofit businesses to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations.

It is recommended to Start a Corporation in California if you would like to provide limited liability protection to your shareholders rather than California LLC. However, you may want to consult to LegalZoom’s Business Attorney before starting a business.

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How to Start a Corporation in California

To start a corporation in California, you must follow the below steps that, include choosing a corporate name, hiring a Agent for Service of Process, appointing directors, filing for Articles of Incorporation, creating corporate bylaws, holding the initial board of directors, issuing stock, obtaining required licenses and permits, registering with state tax agencies, and annual reporting and ongoing compliance. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choosing a Corporate Name

The first step in starting a corporation is choosing an available name that complies with California naming rules. Most states require that the name of a corporation be distinguishable from other registered business names and include a corporate designator such as “Corporation,” “Incorporated,” “Company,” or an abbreviation thereof.

Here are some guidelines you must follow while naming your corporation in California-

  • Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
  • Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

To check the availability of your desired corporate name, you can search the California Secretary of State‘s business name database and Business Name Search in California. If the name is available, you may choose to reserve it for a specific period of 60 days by filing a name reservation application and paying the online name reservation fee of Not available and mail name reservation fee of $10. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name.

The DBA filing can be done by two methods, online and by mail, which costs around $26 for filing and $5 for each additional business name.. In addition, the DBA’s validity in California is five years, which you can file in California Secretary of State.

You can check out How to File a DBA in California for clearer understanding.

Step 2: Hire a Agent for Service of Process

Hiring a Agent for Service of Process is essential in starting a corporation. Agent for Service of Process is a person or company responsible for receiving important legal documents, tax notices, and other correspondence on behalf of your corporation. They ensure that your corporation remains compliant with state regulations and requirements. There are California Agent for Service of Process Services to check in forming California Corporation. We reviewed some of the best-registered agent services and provided features as an add-on with their packages.

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Step 3: Appointing Directors

Corporations in California are required to have at least One directors, though some states may require more. Directors are responsible for overseeing the corporation’s management and making major decisions on behalf of the company. In California, directors must be at least 18 years old and do not need to be state residents.

When appointing directors, it is essential to consider individuals who are knowledgeable, trustworthy, and capable of making sound business decisions. Maintaining a record of appointed directors, including their names, addresses, and terms of service, is also a good idea.

Step 4: Preparing and Filing Articles of Incorporation

After you appoint the initial board of directors in your California corporation, the next step is to write and file a Articles of Incorporation. In writing, the California Articles of Incorporation, the corporation name, principal place of business, the purpose of business, Agent for Service of Process contact information, and the names and addresses of incorporators and initial board members, should be written.

To officially form your California corporation, you must prepare and file Articles of Incorporation with the California Secretary of State. The Articles of Incorporation is a legal document that outlines essential information about your corporation, such as its name, address, purpose, and details about its stock.

The specific requirements for Articles of Incorporation vary by state, but generally, the document must include the following:

  • The corporate name
  • The purpose of the corporation
  • The name and address of the registered agent
  • The names and addresses of the initial directors
  • The number of authorized shares and their par value
  • The name and address of the incorporator(s)

Once the Articles of Incorporation are complete, please submit them to the California Secretary of State’s office, along with the required filing fee. Fees vary by state, but in California, the Articles of Incorporation filing fee costs around $100 for filing online and by mail. $115 for in person filing. It is crucial to provide accurate and complete information on this document, as errors or omissions may result in delays or rejection of your filing.

  • Online Filing: Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything.
  • Offline filing: Send the form by mail to Secretary of State, Business Entities Filings, P.O. Box 944228, Sacramento, CA 94244. Or drop it off in person to 1500 11th St., 3rd Floor, Sacramento, CA – 95814

Step 5: Creating Corporate Bylaws

Now you are done filing Articles of Incorporation in California, the next step is to draft corporate bylaws. While not always required by law, creating corporate bylaws is essential in establishing California corporation. Bylaws are the internal rules and regulations that govern the corporation’s operations and management. They outline the rights and responsibilities of directors, officers, and shareholders and provide guidelines for holding meetings and making decisions.

Key provisions to include in your corporate bylaws may include:

  • The corporation’s purpose and principal place of business
  • The roles and responsibilities of directors, officers, and shareholders
  • The process for appointing and removing directors and officers
  • The procedures for holding annual and special meetings
  • The methods for amending the bylaws and Articles of Incorporation
  • The procedures for issuing stock and maintaining shareholder records

Once the bylaws are drafted, they must be adopted by the corporation’s board of directors. Keeping a copy of the bylaws with your corporate records and updating them to reflect changes in the corporation or applicable laws is essential.

Step 6: Holding the Initial Board of Directors Meeting

The initial board of directors meeting is a crucial milestone for your California corporation. During this meeting, the directors will adopt the corporate bylaws, elect officers, and make other key decisions to set the foundation for the corporation’s operations.

The agenda for the initial board meeting may include the following:

  • Adopting the corporate bylaws
  • Ratifying any pre-incorporation actions taken by the incorporator(s)
  • Electing corporate officers (e.g., president, vice president, secretary, treasurer)
  • Designating a corporate bank account
  • Authorizing the issuance of stock
  • Approving necessary licenses, permits, and tax registrations

It is essential to keep detailed minutes of the initial board meeting, documenting the decisions made and actions taken. These minutes should be stored with your corporate records.

Step 7: Issuing Stock

Corporations in California are required to issue stock to their owners, also known as shareholders. When preparing to issue stock, you must determine the number of authorized shares and their par value, as outlined in your Articles of Incorporation. You may choose to issue different classes of stock, each with its rights and privileges, such as voting rights and dividend preferences.

The process for issuing stock typically involves the board of directors approving a stock issuance resolution, determining the price per share, and recording the issuance in the corporation’s stock ledger. Maintaining accurate and up-to-date records of all stock transactions, including transfers and cancellations, is crucial to ensure proper ownership tracking and compliance with securities laws.

Step 8: Obtaining Required Licenses and Permits

Depending on the nature of your corporation’s activities and location, you may need to obtain various licenses and permits to operate legally. These may include federal, state, and local requirements, such as:

  • A Federal Employer Identification Number (EIN) for tax reporting and employee withholding purposes.
  • State sales and use tax registration, if your corporation sells taxable goods or services
  • Professional or occupational licenses for specific industries (e.g., healthcare, construction, food service)
  • California Business Licenses, zoning permits, and health department approvals

Researching and obtaining all required California licenses and permits before commencing operations and maintaining compliance with any ongoing renewal or reporting requirements is essential.

Step 10: Registering with State Tax Agencies

In addition to obtaining licenses and permits, your California corporation may also need to register with various tax agencies. This may include registering for sales and use tax, obtaining an Employer Identification Number (EIN) in California for payroll tax purposes, and filing state income tax and franchise tax returns.

An EIN will serve as the tax ID for your California corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in California can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Each state has tax requirements, so consult a tax professional or California Franchise Tax Board for guidance on your specific obligations.

Step 11: Biennial Reporting and Ongoing Compliance

Once your California corporation is up and running, you must fulfill ongoing reporting and compliance requirements to maintain good standing. This may include filing Biennial Report with the California Secretary of State, updating your corporate records to reflect changes in directors or officers, and staying current on any required licenses or permits.

In addition, it is essential to stay informed about changes in corporate laws and regulations that may impact your business and to seek professional advice when needed.

Paying Your Taxes in California

Even if you have established your corporation in California, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in California has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in California are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in California

In forming a corporation in California, a filing and Biennial fee must be paid. Without it, your corporation won’t operate. A corporation’s initial filing fee may vary from state to state. However, in California, it costs $100 for filing online and by mail. $115 for in person filing. The corporation in California also has to file an Biennial Report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly.

FAQs

What is the process for starting a corporation in California?
The process for starting a corporation in California involves filing articles of incorporation with the Secretary of State.
Can I form a corporation in California if I’m not a resident?
Yes, you can form a corporation in California even if you are not a resident or citizen of California.
What is the minimum number of shareholders required to form a corporation in California?
One or more shareholders are required to form a corporation in California.
Can I be the sole shareholder, officer, and director of the corporation?
Yes, you can be the sole shareholder, officer, and director of the corporation.
How long does it take to form a corporation in California?
It typically takes 10-15 business days to form a corporation in California.
How much does it cost to form a corporation in California?
The filing fee for articles of incorporation in California is $100 plus an additional fee if expedited service is requested.
What type of entity is best for my business, a corporation or LLC?
The best entity for your business depends on your specific goals and needs. consulting with a lawyer is always advisable.
What is a California corporation’s annual registration fee?
In California, every corporation needs to pay an annual registration fee of $800.
What additional documents are required to be filed after the articles of incorporation?
Additional documents to maintain compliance, such as statement of information and meeting minutes, should be filed with the state.
After forming a corporation in California, what else do I need to do?
After forming a corporation in California, you need to obtain all necessary business licenses and permits.
Do I need to register my California corporation for state tax purposes?
All California corporations must register with the California Franchise Tax Board.
What is a California corporation’s tax rate?
California corporation tax rates vary by income level.
Can a corporation own property in California?
Yes, a corporation can own property in California.
Can a California corporation be taxed as an S Corporation?
Yes, a California corporation can choose to be taxed as an S Corporation.
Do I need to have a registered agent in California for my corporation?
After the articles of incorporation are filed with the registrar, it is mandatory to have a registered agent in California for the corporation.
What is the penalty for a corporation that fails to file articles of incorporation on time?
A corporation that fails to file articles of incorporation on time may face penalty fees.
Can I use a business name that is already taken for my corporation in California?
A business name cannot be registered by multiple entities in California. Name availability should be checked to ensure the availability to use a name.
Can I reserve a business name for use in the future when filing articles of incorporation?
Yes, you can reserve a business name for up to 60 days in California before you file for incorporation.
Are corporations required to have bylaws in California?
Yes, corporations are required to have bylaws in California.
What is a Statement of Information, and when is it due?
A statement of information is a report filed with the state to ensure accurate records are available for state research purposes; it is to be filed every year.
Are stock certificates required for California corporations?
California corporations system do require companies to issue stock certificates, even though they might not be necessary as proof in today’s legal world.
Do California corporations need to file an annual report with the Franchise Tax Board?
California corporations’ shareholders and managers need to file an annual statement by each year to maintain its good standing eligibility with the state.
What is a Fictitious Business Name, and when is it required for my corporation?
If your corporation wants to operate under a name that is various from the name on its articles of corporation, you need to file for a fictitious name statement.
Do California corporations need a business license?
yes, California corporations must acquire the necessary permits and licenses for its legal operation.
Can I form a corporation in California online?
Yes, you can file your articles of incorporation with the California Secretary of State’s office online for a fee.
How often do California corporations need to hold board meetings?
There is may no legal minimum frequency requirement prescribed, but it is necessary to keep regular meetings inside a corporation.
Where can I find additional resources for forming my corporation in California?
The California Secretary of State’s office provides various resources and guidelines on its website that helps potential corporation entrepreneurs in California.
Can I convert my LLC to a corporation in California?
Yes, you can convert your LLC to a corporation in California if that serves your current business needs..
What are the steps to form a corporation in California?
The steps to form a corporation in California include choosing a business name, appointing officers and directors, filing articles of incorporation with the Secretary of State, obtaining any necessary permits and licenses, and holding an initial meeting of the board of directors.
Does California require a minimum number of directors for a corporation?
Yes, California requires at least one director for a corporation.
What is the filing fee to incorporate a business in California?
The filing fee to incorporate a business in California is $100.
After incorporating in California, do I need to register with any other state agencies?
Depending on your business, you may need to register with additional state agencies such as the California Franchise Tax Board or the California Employment Development Department.
What is the tax rate for corporations in California?
The tax rate for corporations in California is 8.84 percent.
Can I incorporate in California without a lawyer?
Yes, you can incorporate in California without a lawyer, but consulting with a lawyer or other professional is recommended to ensure that all legal requirements and best practices are followed.
Are there any restrictions on the name I can choose for my corporation in California?
Yes, California law requires that the name of your corporation be distinguishable from other businesses, include a corporate indicator such as “corporation” or “incorporated,” and not contain certain prohibited words.
How long does it take to incorporate a business in California?
the California Secretary of State’s office processes articles of incorporation on a first-come, first-served basis. Applying online usually takes about seven business days, while the turnaround time for mail-in applications is typically four to six weeks.
Can a corporation in California issue stock or shares?
Yes, a corporation in California can issue stock or shares and sell these to investors to raise capital.
Do I need to file a separate tax return for my California corporation?
Yes, California corporations must file a separate tax return with the Franchise Tax Board.
What documents do I need to submit with my articles of incorporation in California?
You will need to submit a completed articles of incorporation form, a certificate of disclosure, and the applicable filing fee.
Are there any special residency requirements for directors or officers of a corporation in California?
No, there are no special residency requirements for directors or officers of a corporation in California.
How can I check to make sure my corporation’s name is available in California?
You can check the availability of your corporation’s name on the California Secretary of State’s website using the Business Search function.
What are the ongoing compliance requirements for a corporation in California?
The ongoing compliance requirements for a corporation in California include filing a Statement of Information annually, holding annual shareholder meetings, and maintaining accurate corporate records and financial statements.
Can a corporation in California operate in multiple states?
Yes, a corporation in California can operate in multiple states, but it will need to register as a foreign corporation in those states.
After forming a corporation in California, what do I need to do to stay in good standing?
To stay in good standing, you’ll need to maintain ongoing compliance with all relevant federal, state, and local laws and regulations, file necessary periodic reports, and pay any required fees and taxes.
Can I amend my California corporation’s articles of incorporation?
Yes, you can amend your California corporation’s articles of incorporation by filing Articles of Amendment with the Secretary of State.
What is a California corporation’s annual minimum tax?
A California corporation’s annual minimum tax is currently $800.
Is a California corporation required to file an annual report?
Yes, a California corporation is required to file an annual Statement of Information with the Secretary of State.
What are the advantages of incorporating a business in California?
Advantages of incorporating a business in California may include greater access to capital, limited liability protection for shareholders, and ability to build corporate structure and governance best practices.
Are there any disadvantages to incorporating a business in California?
A corporation in California can be more expensive and time-consuming to incorporate and maintain paperwork and compliance.
Can I incorporate a nonprofit organization in California?
Yes, you can form a nonprofit corporation in California under California’s Nonprofit Corporation Law.
What is the processing time for amending a corporation’s articles of incorporation in California?
The processing time for amending a corporation’s articles of incorporation in California can vary, but may take several weeks.
How long does a corporation’s incorporation document remain on file with the Secretary of State in California?
A corporation’s incorporation document typically remain on file with the Secretary of State in California permanently.
Can I form an S corporation in California?
Yes, you can form an S corporation in California, subject to specific eligibility requirements.
Who can sign the articles of incorporation for a California corporation?
The articles of incorporation for a California corporation can be signed by any of the corporation’s initial directors or incorporators.
Can I use an out-of-state registered agent for my California corporation?
No, California law requires that a corporation’s registered agent be a California resident or a registered corporate agent with a physical address in California.

Also Read

How to Save Money While Forming Your California Corporation

One of the simplest ways to save money when forming your California corporation is to DIY as much of the process as possible. While seeking advice from legal professionals is essential in certain aspects of forming a corporation, there are many tasks you can take on yourself to avoid hefty legal fees. Filing paperwork with the Secretary of State, drafting bylaws, and creating operating agreements can all be done independently with thorough research and some effort. By dedicating time and energy into these tasks, you can significantly reduce the cost of hiring a lawyer for every step of the process.

Additionally, it’s essential to research and compare different incorporation packages offered by online legal services. Many companies provide affordable rates for basic incorporation services, helping entrepreneurs save hundreds or even thousands of dollars compared to hiring a traditional law firm. It’s vital to thoroughly read through the fine print of each package to ensure you understand exactly what you’re paying for and what additional fees may be incurred down the line. Choosing a package that includes everything you need upfront can prevent unexpected costs from piling up, ultimately saving you money in the long run.

Another tip for saving money while forming your California corporation is to consider the long-term financial implications of the decisions you make in the beginning stages. For example, choosing the right entity structure for your business can have a significant impact on your taxes and overall expenses. Consulting with a tax professional or financial advisor before incorporating can help you select an entity that aligns with your goals and minimizes your financial burden.

Furthermore, it’s crucial to keep track of your expenses and take advantage of any available tax deductions and credits. Maintaining detailed records of your business costs can help you identify areas where you can cut expenses and potentially qualify for tax breaks. This proactive approach to financial management can save you money not only during the incorporation process but also throughout the lifespan of your corporation.

Lastly, networking with other entrepreneurs and seeking advice from those who have successfully formed businesses in California can be a valuable resource for saving money. By connecting with individuals who have gone through the process themselves, you can gain insight into cost-saving strategies and potential pitfalls to avoid. Building a network of support within the business community can provide you with valuable guidance and assistance as you navigate through the complexities of forming your corporation.

In conclusion, saving money while forming your California corporation is all about being proactive, resourceful, and diligent in your approach. By taking the time to research your options, DIY certain tasks, choose the right incorporation package, think long-term, track expenses, and seek advice from others, you can significantly reduce the cost of establishing your business. With these strategies in mind, you can set yourself up for financial success and stability as you embark on your entrepreneurial journey.

Conclusion

Starting a corporation in California involves several critical steps, from choosing a corporate name to fulfilling ongoing compliance requirements. Following the steps outlined in this guide and seeking professional advice when needed, you can successfully establish your California corporation and enjoy the benefits of limited liability, potential tax savings, and a professional business image.

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