Have you considered incorporating in California but you’re just not sure where to begin? As a California business owner, I’m excited to help guide other entrepreneurs get their companies up and running in this fine state.
In this post, I’m going to walk you through the process of forming a corporation in California. But first, let’s take a look at the various kinds of corporations the state recognizes.
Types of Corporations in California
- General For-Profit Corporation (General Stock Corporation) – A General For-Profit Corporation is a legal entity, separate from the shareholders who own its stock. It can exist for an indefinite period and has no restrictions on the number of shareholders it may have.
- Close Corporation – This type of corporation has a provision within its Articles of Incorporation that limits its number of shareholders. It must not have more than 35 persons holding all of its issued shares of stocks (all classes).
- Professional Corporation – In California, certain professionals must form a professional corporation (PC) rather than a traditional C Corporation. It is a business entity used by licensed professionals such as certified public accountants, attorneys, physicians, psychiatrists, psychologists, and some others. The legal regulations that apply to PCs are in some ways different than those for traditional corporations.
California recognizes other business structures, too, including Limited Liability Company (LLC), Limited Partnership, General Partnership, and Limited Liability Partnership. Before you decide whether a corporation or one of the other entities is right for you, I encourage you to talk with your attorney and accounting professional to discuss the legal and tax impact of all options.
What Are the Benefits of Incorporating in California?
Because of California’s innovative entrepreneurial landscape and notable business benefits, even business owners in other states sometimes choose to register their companies here.
One major advantage that corporations in California enjoy is having some flexibility in how they manage their leadership. In the state of California, you need just three officer positions. They include president, chief financial officer, and secretary. Many jurisdictions will allow one person to serve in all three of those capacities.
The requirements for directors on your Board of Directors provide some leeway, too. Directors of a California-based corporation may live anywhere and there’s no minimum age.
The minimum number of directors is just three, and if one of the following conditions applies, you can have even fewer:
- Your company has not issued shares. In this scenario, you may have one or two directors;
- Your corporation has one shareholder. In this case, you may have one or two directors;
- Your business has two shareholders. In this situation, you may have two directors.
And if you’re interested in growing your business, you may find it easier to find shareholders as a California-based corporation. The state allows shareholders to remain anonymous. Only the name of your registered agent (a.k.a. agent for service of process) must go on public record with the state.
Another potential benefit is California’s tax treatment flexibility. The types of taxes and amounts you pay will depend on the business structure you’ve chosen and your company’s amount of taxable income.
Your Step-By-Step Guide to Incorporating in California
To help you get a grasp on what you’ll need to do to incorporate your business in California, I have listed the main steps involved below. Before you begin the process of incorporating in California, I recommend setting up a records book or binder in which to keep all of your important paperwork. If you work with CorpNet in registering your business, we will provide one for you.
1. Choose Your Business Name
After you know what you’d like to call your company, you’ll need to make sure the name is available and meets California’s rules and regulations.
Do a California corporation search on the name to make sure another business isn’t already using it. The state won’t approve a name if another California corporation goes by that name, or if the name is so similar to another business’s name that it might confuse or mislead the public. You must use “Corporation,” “Company,” “Incorporated,” or “Limited,” or an abbreviation of them behind your business name if you’ve filed as a professional corporation or close corporation.
Fortunately, performing a corporate name search is not as difficult as you might expect. CorpNet has a free online corporate name search tool to make it quick and painless. If the results indicate your name is available, but you’re not quite ready to form your corporation, we’ll be happy to notify the State of California to reserve the business name for you. That will ensure no one else will take it before you’ve officially completed your paperwork to incorporate. Please note, however, that name reservation is good for just 60 days. If you haven’t incorporated by then, the name will again be up for grabs.
If you file to incorporate right away, you won’t need to file a name reservation request because forming your legal entity will automatically reserve your business name.
2. File Articles of Incorporation with the State of California
Next, it’s time to make your corporation official by filing Articles of Incorporation with the California Secretary of State. California’s requirements for your Articles of Incorporation include:
- Corporate name – This must be the exact name of your business, as you want it to appear in the State of California’s records.
- Corporate purpose – This is a general statement of the purpose of your company. The required verbiage is pre-populated on the Secretary of State’s forms for General Stock and Close corporations. The form for Professional Corporations requests that you state the type of profession your company will engage in, as well.
- The name and physical address (not a post office box) of your registered agent – This is the entity that is authorized to accept legal documents, business compliance notices, and other important documentation on your behalf. Your registered agent must be recognized by the State of California and have 8 a.m. to 5 p.m. business hours.
- Corporate address – Provide your business’s physical street address, not a P.O. box. If your mailing address is different, then include that, as well.
- Number of authorized shares of stock – Provide the total number of shares that your corporation is authorized to issue to shareholders.
You can file your Articles of Incorporation on your own with the Secretary of State. But to avoid potential errors or delays, you can turn to CorpNet to handle it for you.
3. Obtain Your Employee Identification Number (EIN)
Also known as a “Federal ID Number” or “Tax ID Number,” your EIN is a nine-digit number mainly used for tax filing and reporting purposes. You’ll also need it for other business documents, and banks will require it before they’ll allow you to open a business bank account. You can apply for an EIN online through the IRS website, or save yourself the hassle by asking CorpNet to complete the EIN application for you.
4. Draft Your Bylaws
Your corporate bylaws will serve as the ground rules for operating your company. Although they’re not a legal requirement, I urge you to write them. They will help ensure everyone in your organization knows how to handle various aspects of your business. Bylaws also show investors and the IRS that you run a credible, responsible business.
To give you a head start in writing yours, CorpNet has a bylaws template available that you can customize to your needs.
5. Hold Your First Board Meeting
Your first Board of Directors meeting should cover several important topics relevant to starting your corporation. It’s at this meeting where you’ll want to appoint your corporate officers, adopt the bylaws you’ve prepared, select a bank, set your business’s fiscal year, authorize the issuance of stock, adopt a corporate seal, and discuss other relevant issues. You must record actions of the directors in corporate minutes and have all directors sign off on those minutes.
6. Open Your Corporate Bank Account
After you’ve registered your corporation with the state, obtained your EIN, and determined the bank you will use, you’re ready to open your corporate bank account. After doing this, your business can accept checks and other payments and pay vendors. As a legal entity that’s independent from its owners, your corporation must have its own financial accounts to avoid comingling business and personal funds.
7. Obtain the Business Licenses You Need to Operate Legally
Check with the state, county, and municipality to find out which business licenses and permits are required to operate your type of business. Failure to do so before you begin selling your services and products could result in financial penalties and even lawsuits.
To save yourself a ton of time, CorpNet can research the requirements of incorporating in California and obtain all the licenses and permits (federal, state, and local) for you.
8. Submit a Statement of Information
All corporations registered in California must file an initial report called a “Statement of Information” with the Secretary of State. You must do this within 90 days after submitting your Articles of Incorporation and every year after that. Your Statement of Information (Form SI-550) will include your corporate name, California corporate number, business address, names and addresses of your corporate officers and directors, registered agent, and type of business.
9. Issue Stock to Each Shareholder
In your corporation’s stock transfer ledger, record your shareholders’ names and contact information. Although not a legal requirement, you might also consider issuing paper stock certificates to your shareholders. You’ll need to make sure your business complies with all securities laws (shares of stock are considered securities) within California, so contact the California Department of Business Oversight’s Division of Corporations for more information.
10. Make Ongoing Business Compliance a Priority!
After you’ve taken all the steps necessary to incorporate your business, you’ll want to keep your corporation in good standing. That demands you your business stays legally compliant. Make sure you educate yourself about requirements regarding shareholders meetings, tax filing deadlines, annual reports, and other essential activities and documentation. With so much to keep track of, I suggest you consider signing up for CorpNet’s online compliance tool, which will notify you of upcoming critical filings and tax deadlines.
Don’t Sweat It – You Don’t Have to Go It Alone
As overwhelming as incorporating in California might seem, it’s actually a rather straightforward process. Yes, there are a lot of moving parts, but you don’t have to do it all on your own.
Reach out to an attorney and tax professional who can educate and guide you in making informed decisions. And for the peace of mind that all your business formation and ongoing business compliance documentation and filings are done accurately and on time, contact CorpNet to handle those details for you.