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How to Form a Corporation in California

shutterstock_155453615_2000When starting a business in the state of California, you can protect your personal assets and give your venture added credibility by filing as a corporation. If you’re an entrepreneur searching for a guide on how to form a corporation in California, you’ve come to the right place. Read on to learn more.

Two Types of Corporations

There are two different types of corporations: S corps and C corps. The main difference between the two is that a C corp is a taxable entity, while an S corp offers pass-through taxation. That means all taxes due from an S corp are paid at the individual level, essentially shielding you from double taxation at the corporate level.

The process for registering either type of corporation is the same—an S corporation is a tax category and not a registration category. All corporations are initially filed as C corps; S corp owners simply complete an additional step with the IRS at the end of the process.

Step 1: Evaluate the Options

Before you dive into forming a corporation, take some time to ensure that a corporation is indeed the best entity for your business. LLCs, partnerships, C corporations, and S corporations all offer their own unique benefits, and you should weigh those benefits alongside each other.

Step 2: Choose a Business Name

California law prohibits you from registering a business name that is too similar to an already existing corporation’s name. Use the California Secretary of State website to do a search of registered businesses in the state, along with the U.S. Patent & Trademark Office to avoid any potential trademark issues when naming your corporation. If you know the name you want to use but are not ready to move forward with the rest of the filing process, you can reserve a name for up to 60 days by filing a Name Reservation Request form and paying a $10 fee.

Step 3: Appoint Directors and a Registered Agent

The next step is to appoint directors for your corporation—at least three if there will be three or more shareholders, or as many directors as shareholders if there will be fewer than three shareholders. Your directors can be your shareholders, and they do not have to be California residents.

You will also be required to appoint a registered agent to receive all official communications for your corporation. The registered agent must be a California resident.

Step 4: Draft and File Articles of Incorporation

The California Secretary of State website provides sample Articles of Incorporation forms. You can use one of their templates to draft your document, which should include the following:

  • Corporation name and legal address
  • Registered agent and contact info
  • Directors and contact info
  • Name and address of person filing
  • Business purpose
  • Shares issued
  • Signature of each incorporator

The filing fee ranges from $30 to $100, depending on the business, and the Articles of Incorporation must be delivered via postal mail or by hand.

Step 5: Draft Bylaws

How you run your company is up to you—that’s the beauty of being a business owner. However, California law requires that you do indeed have actual bylaws that outline how your company is governed.

Step 6: File a Statement of Information

At this point, you’re almost home free with all of your filing requirements. Within 90 days of filing your Articles of Incorporation, be sure to file a Statement of Information (Form SI-100 or SI-200) with the Secretary of State. Note that you’ll have to re-file every year. The filing fee is $20, and the documents can be filed online.

Step 7 (If Applicable): Get S-Corp Status

Once your corporation is officially registered, this would be the time to make the switch from the default C corp to S corp, if desired. To do this, you will file Form 2553 with the IRS. There is no filing fee, but you will have to meet certain requirements, such as having fewer than 100 shareholders and getting consent from all shareholders to pursue S corp status. You will also have to make your S corp election within 2 months and 15 days after the first day of the taxable year to elect.

Step 8: Fulfill Tax Obligations

Perhaps the most complex phase of forming a corporation in California is getting all of your tax information and tax requirements aligned. This includes:

EIN

For tax purposes, all new corporations are required to obtain an Employer Identification Number (EIN) from the IRS. There is no filing fee.

Annual Minimum Tax

Regardless of whether your corporation sees profits, losses, or remains idle, you will pay an annual minimum tax of $800 during the first quarter of each accounting period.

Business Permits and Licenses

Different types of businesses require different licenses. For example, California requires restaurant owners to complete mandatory training and obtain a California Food Handler Card. A restaurant that intends to serve alcohol also requires liquor licensing from the California Department of Alcoholic Beverage Control. Additionally, there are permits and checks relating to crowd control, exits, and handling of emergencies.

The CalGold website from the California Governor’s Office of Business and Economic Development is an extremely useful tool that provides a comprehensive database of required licensing for any business entity in any industry.

Jumpstart Your Corporation

Does all of this sound like something you would rather have someone else complete on your behalf? You’re not the only one. David York’s Tax Service incorporates hundreds of businesses across the U.S. each year. Becoming the next great business success story starts here. See how we can help, and let us bring your business to life!