How to Start a California Corporation

When you plan to start a business in California, you must decide on the appropriate structure. Starting a corporation may be more complicated than creating an LLC in California or a sole proprietorship. However, it is not that difficult as well. There are a few guidelines that you should be aware of when it comes to creating California corporation. Starting a corporation involves a legal process, that is, the process of incorporation.

In this article, I will share a step-by-step guide to start a corporation in California. I will also enlighten you on the advantages and disadvantages of having a corporation. Some people consider starting a corporation in California more than other business structures since it has many advantages over other forms.

What is a Corporation in California

In definition, a corporation is a formal organization established by stockholders, shareholders, or other people to make a profit. Like individuals, corporations can undertake contracts, own assets, sue and be sued, pay taxes, limit state and federal taxes, and loan funds from banking institutions.

Common Types of Corporations

Before you start with the process of forming 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: An S-Corporation is set up similarly to a C-corporation but has different tax implications and owner limits. S-corps have no more than 100 stockholders and are not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

• Non-profit Corporation: Nonprofit businesses are frequently used by religious, educational, and charity institutions 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. Read how to start a nonprofit corp in California to learn about nonprofit corporations.

If you have a small business, it is recommended that you form an LLC instead of a corporation in California. LLCs have more tax benefits than other structures. Besides, LLCs protect your personal assets. However, it is wise to consult a legal expert before you start setting up your business in California.

– LLCBuddy Editorial Team

How to Start a Corporation in California

To start a corporation in California, you must follow the below steps that, include forming a corporation name, appointing a board of directors, filing for Articles of Incorporation, drafting corporate bylaws, meeting with the board of directors, issuing stocks, creating a shareholders agreement, requesting for an EIN, and getting a license and permit. 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: Choose a Corporation Name in California

Naming your business is one of the most crucial activities during the startup phase. Your corporation name serves as the foundation for your brand. Legal procedures should be taken into account when choosing your corporation name. Choose a corporation name that will enable you to develop a strong brand identity without being hampered by irrelevant factors.

If you are forming an LLC, there is a complete guide on California LLC name guidelines for a proper LLC name. 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.”

Step 2: Board of Directors Initial Appointment

To form a corporation in California, you must appoint an initial board of directors before making them permanent once the corporation is formed. In California, you may appoint at least One board of directors. The initial board of directors is in charge of guiding the overall strategy of your business. The structure, responsibilities, and powers given to a board of directors are determined by the bylaws of a company or organization. So, appointing your corporation’s initial board of directors in California is a big step in forming a corporation.

Step 3: Filing the Articles of Incorporation in California

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, California Agent for Service of Process contact information, and the names and addresses of incorporators and/or initial board members, should be written.

Filing a Articles of Incorporation in California may be done with three ways, online, by mail and in-person. The Articles of Incorporation fee may vary from different states. However, in California, it costs $100 for filing online and by mail. $115 for in person 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 4: Draft Corporate Bylaws

Now you are done filing a Articles of Incorporation in California, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made-

• The responsibilities are given to each officer.
• How will judgments in business be made?
• Where and when are the annual shareholder meetings?
• The minimum number of shareholders required for decision-making.
• Location and timing of dividend payments.

Step 5: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 6: Issuing Stock in a Corporation

After starting your California corporation, one of the first official corporate actions is issuing stock to the shareholders. Keep track of the number of shares issued to each shareholder and the purchase price. A corporation in California is managed by its shareholders, who contribute to the business in exchange for ownership shares.

Step 7: Draft and Finalize a Shareholders Agreement

Even though drafting and finalizing a shareholders agreement is unnecessary, I suggest you still comply since it will benefit your corporation and its shareholders. A small business’s shareholders enter into a shareholder agreement contract. It establishes how ownership will be handled in unexpected situations, like a shareholder passes away, retires, becomes disabled, or quits the corporation. Early on in the life of your California corporation, signing a shareholders’ agreement can help maintain corporate continuity and prevent future disputes.

Step 8: Request an EIN in California

After everything is in place, you should get or request an Employer Identification Number (EIN). 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 EIN online 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 4 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.

After you have your EIN number, you can benefit in a number of ways. It will give your corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 9: Get Licenses and Permits for your Corporation in California

Before your corporation operates in California, you must have a business license. A business license is a document issued by a government agency that permits you to operate your business in the geographic region that that agency governs. To legally operate your corporation, you’ll need a business license. Numerous corporate licenses need to be filed and renewed regularly. Check out how to get business licenses and permits in California to know more.

You must also register a DBA name if you intend to conduct business using a name other than your corporation’s legal name. The DBA name is sometimes known as “doing business as” or a “fictitious business name.” Depending on your location, you may need to register the DBA with your state, city, and county. You can skip this step if your business solely uses your legal company name.

Important Information

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

A filing and annual fee must be paid to form a corporation in California. Without it, your corporation won’t operate. The initial filing fee for a corporation may vary depending on the 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 annual 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. If, in the future, you make any changes to your corporation, you must file the California Amendment. It costs $30.00 to file an amendment in California.

Advantages of Starting a Corporation in California

1. Limited Liability: The biggest advantage of setting up a California corporation is that the shareholders are not personally responsible for the debts of the company. As a result, when you incorporate as a corporation, personal assets like homes, vehicles, and other possessions are prohibited. One of the main benefits of setting up a corporation over a general partnership or sole proprietorship business structure is that neither the business nor the owners are held legally responsible for the obligations of the business, even if it means giving up their personal assets.

2. Limitless Corporation: The fact that a corporation’s existence is independent of its owners is another significant benefit of incorporation. In other words, a corporation has an endless life and will continue operating normally even if the owner dies or decides to sell their ownership.

3. Advantages in Tax: The deduction of health insurance premium payments made on behalf of an owner-employee is one of the many financial benefits to which corporations are entitled. Corporations also save on self-employment taxes since their revenue is not subject to workers’ compensation, Social Security, or medical taxes. Tax rates on corporate profits are lower than those on individual income.

FAQs

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Why California Corporation is So Important

First and foremost, California Corporation is home to some of the biggest and most innovative companies in the world. From Silicon Valley tech giants like Google, Facebook, and Apple to entertainment powerhouses like Disney and Warner Bros., California is a hub of innovation and entrepreneurship. These companies not only drive the state’s economy but also set trends and standards that influence industries globally. Their success has made California Corporation a model for business excellence and a destination for entrepreneurs seeking to make their mark on the world.

Moreover, California Corporation plays a vital role in job creation and economic growth. The state is home to a diverse range of industries, from technology and entertainment to agriculture and manufacturing. These industries provide employment opportunities for millions of Californians and generate billions of dollars in revenue each year. The success of California Corporation is a testament to the state’s innovative spirit and entrepreneurial culture, which have made it an attractive destination for businesses looking to thrive in a competitive market.

In addition, California Corporation contributes significantly to the state’s tax revenue, which funds essential services and infrastructure projects. The revenue generated by these companies helps support education, healthcare, transportation, and other public services that benefit all Californians. Without the contributions of California Corporation, the state would struggle to meet its financial obligations and provide the quality of life its residents deserve. Therefore, the success of these companies is not just important for the business community but for the well-being of the entire state.

Furthermore, California Corporation plays a leadership role in sustainability and social responsibility. Many of the state’s corporations are leading the charge in environmental conservation, social justice, and ethical business practices. From renewable energy initiatives to diversity and inclusion programs, California companies are setting standards for corporate responsibility that are being emulated around the world. Their commitment to making a positive impact on society is not just commendable, but it’s also necessary in today’s increasingly interconnected and ethical business environment.

In conclusion, California Corporation is a cornerstone of the state’s economy and a driving force behind its success. Its impact goes beyond just profits and revenue—it influences innovation, job creation, public services, and the overall well-being of Californians. The contributions of California Corporation cannot be overstated, and its importance will only continue to grow as the state’s economy evolves. It’s clear that California Corporation is not just important for California, but for the entire business world.

Conclusion

When determining which corporate form is best for you, be selective. You must know which business structure is bet-fitted for your product/service in California. Consult a legal professional before you take the first step while setting up your business. Finding the ideal ratio of corporate advantages and legal protection that meets your unique needs is very important. In forming a corporation in California, you need to ensure that every detail is well-formed so that your corporation will be successful. And if you have any questions, share them in the comment section below.