After studying the benefits and challenges of incorporating as a California corporation, you may decide that it is the best route for your company. We’ll discuss what steps are required to form a corporation in California, how much it costs, and where to find helpful resources along the way.
The Benefits of a California Corporation
California corporations offer numerous benefits beyond the low cost and minimal administrative requirements. In many ways, corporations are more advantageous than a sole proprietorship or partnership.
For example, corporations have perpetual lives, meaning that they never die — at least not in California. Once formed, a corporation can be formed indefinitely and is not subject to state laws regarding annual meetings or other corporate actions. Corporations can also use the same name as the owner, so they do not have to be changed after individual leaves the company.
Corporations also have some advantages over LLCs. In most states, an LLC carries all of the disadvantages of a corporation and none of its benefits. These disadvantages include the need to file yearly tax returns and pay federal tax obligations.
However, corporations enjoy flexibility. In California (and only in California) an unlimited number of shareholders may be formed. A corporation may also be indexed as a “C” corporation, which adds several benefits such as the ability to issue stock without paying federal taxes on dividends.
There are also several disadvantages of forming a corporation
First, an individual may only hold one title in a California corporation, meaning that he or she must resign from this position before becoming the sole proprietor of any business operations that use the corporate name and address.
What are the steps necessary in order to start my own corporation?
The first step is filing articles of incorporation with the Secretary of State. You can file this online or include it with the documents you submit for your corporation filing fee. The second step is to decide on the name and address of your new business. This must be in California but does not need to match where you are physically located at this time.
What are the benefits of forming a corporation?
Incorporation offers many different tax and liability advantages that can be beneficial for your business, including:
- The IRS limits personal liability to include only what you’ve invested into the company ($500). This is one way corporations shield themselves from creditors.
- Corporations cannot go out of business or lose their assets, which makes it easier to pass the company down in a will and avoid high estate taxes.
How do I start a corporation in California?
- File Articles of Incorporation with the Secretary of State
- Decide on a name and address for your new business
- Purchase stock from yourself to make you initially authorized shareholder
The last step is applying for an EIN or Federal Tax ID (EID). You can do this by going to the IRS website and filling out an application.
How do I apply for an EIN?
- Download Form SS-E (Application For Employer Identification Number) from the IRS site. Fill it out, then mail or fax your form and supporting documentation(s) back to the appropriate address listed on the form instructions.
- You will need to include a variety of information about your business and yourself, including:
- The name and address of the new corporation you formed.
- Ownership structure (Proprietorship or Corporation).
- Your Social Security number, taxpayer identification number, date of birth, mailing address in the U.S., telephone number, and email address.
- The name of the new corporation you formed.
- Your Social Security number or taxpayer-identification number.
- Date of birth for yourself and your employees (or date they started working).
How long does it take to set up a corporation in California?
The process can take up to two months and you will need to submit a set of documents with your filing fee.
What is the difference between an LLC and a corporation in California?
There are some minor differences between an LLC and a corporation in California, including how you tax your business.
- Corporations pay taxes on their income while the owner pays personal income taxes as they make money from dividends or interest earned by investments held within the company.
- Partnerships typically have more restrictions on what can be taken out of the business, while LLCs do not.
- An LLC has a more limited level of liability protection than that offered by corporations or partnerships. It also does not allow for the same protections when it comes to passing on assets as an inheritance through the estate process.
How can I improve my chances of success?
There are many ways to ensure that your company is successful. Some of these include:
- Keep good records
- Be timely with payments to suppliers, employees, and others who provide services for the business
What are some other benefits of incorporation?
Some of the additional advantages you may find through forming a corporation in California include better protection from lawsuits due to their limited liability, the ability to take on investors without having them become a partner in your business, and better asset protection.
Is an LLC a corporation in California?
The differences between an LLC and a corporation in California are relatively minor, so it does not matter if you form an LLC or incorporate it when starting your new business.
What is the difference between S Corporation and C Corporation?
- C corporation pays taxes on its income while the owner pays personal income taxes as they make money from dividends or interest earned by investments held within the company.
- Partnerships typically have more restrictions on what can be taken out of the business, while LLCs do not.
- An S corporation has a limited level of liability protection and does not allow for the same protections when it comes to passing on assets as an inheritance through the estate process.
What is a California corporation?
A corporation is a legal entity created to limit personal liability for the investors and can be formed as an S Corporation or C Corporation.
Where can I find more information?
More detailed information on incorporation and other topics of interest to new business owners can be found at the Secretary of State’s website.
Are there any legal documents I need to review before establishing an LLC?
Before starting a business with an LLC, you will need to read and sign Articles of Organization that outline the terms for operating as an entity in California. You may also want to consult with a law professional when planning out your new venture.
How much is the California Statement of Information?
The California Corporation Commission (Commission) is recognized as the state agency responsible for registering corporations, limited liability companies, and many types of business entities. Corporations are registered with the California Secretary of State’s office to qualify for taxation under the Corporate Franchise Tax.
As a public utility company, Telecommunications providers must file a Statement of Information (Form ST-4) electronically with the Commission in order to lawfully conduct business in California.
What are the filing fees?
The most common form filed with the Commission is the Statement of Information (Form ST-4). Fees vary based on whether your company is classified as a telecommunications service provider, wireless telecommunications service provider, or cellular mobile telephone company.
Please note: filing fees will be due along with your Completed Form ST-4. The Electronic Filing Fee is also due. Please contact the Corporation Commission for any questions regarding fees and acceptable methods of payment.
When is the California Statement of Information due?
The statement is due on the anniversary of the effective date of the registered activity (i.e. a corporation formed on May 1st, 2013 would have an effective date of May 1, 2013).
What are some good reasons for filing a Statement of Information?
The most common reason to file a Statement of Information is to obtain the California Business Tax ID number (CBT number) and pay the corporate franchise tax owed.
What Forms Do I Need to Start a Corporation?
You will need to file one Statement of Information for each new corporate entity that is being formed. There are two forms available – California Business Registration Application (Form SB-100) and Form ST-4. Both forms are the same except for the difference in purpose.
If you are starting a new corporation, you will need to file both forms. If you are forming a new limited liability company, only one of the forms may be used.
What are the filing requirements?
The California Statement of Information (Form ST-4) must be completed and signed by all of the owners or members as well as the corporate officers and/or managing agents. The filing does not need to be notarized.
When Your Tax Year is Less Than 15 Days (15-Day Rule)
In California, new corporations must pay a state business tax on the first day of their tax year. For example, if you wish to form a corporation that was formed on May 1st, 2013 and your tax year is less than 15 days (i.e. you are forming to fulfill your annual requirement), you must file a signed statement with the Commission no later than April 1, 2013, at 10:00 AM.
Do Corporations Have Yearly Filings?
If your corporation has more than one member, then the corporation will have to file a Statement of Information every year. If your corporation has only one member then the corporation does not need to file a Statement of Information annually.
Do Corporations Need an EIN?
An Employer Identification Number (EIN) is used to identify a business entity for tax purposes because it is used on IRS documents that report income and employment taxes.
What should I know about California taxes?
The first $250,000 of California corporate taxable income is exempt from state taxes.
California has a minimum tax of $800 per year for corporations that are subject to the minimum tax. For corporations with no income or partial income under $1 million, the minimum tax is $800. For corporations that have an income over $1 million and less than $2 million, the minimum tax is the amount of taxable income over $1 million times 0.00549 plus 18 percent of all taxable income over $1 million.
What is a Registered Agent?
A Registered Agent is a person or business entity that is a mandatory representative for service of process, notice, and/or legal papers.
How can I become my own Registered Agent?
If you live in California, you are able to become your own Registered Agent by signing the Statement of Information (Form ST-4). If you do not reside in California, the only way to become your own Registered Agent is if you are the only owner/member of the LLC.
What is a Statement of Information (Form ST-4)?
The Statement of Information (Form ST-4) is an application form that you fill out and file with the California Secretary of State to register your business. You will need to submit a Form ST-4 for each business entity you register, such as corporations, LLCs, foreign entities, domestic entities doing business in California, or foreign entities doing business in California. Businesses formed prior to January 1st, 2013 will continue to use Form LLC-3.
When a Federal Short-Period Tax Return is Required
If the corporation had taxable income over a 12-month period of less than $1,000, it must pay taxes on the current year’s income using Form 1120S. If it had taxable income over a 12-month period of $1,000 or more, it must file a federal tax return (Form 1120). If it has income in excess of $1,000,000 for a federal tax year, it then must also file an additional return with the IRS (Form 1120).
What is Form 1120?
Form 1120 is a federal tax return form that is used to report taxes due on a company’s income. It also requires the filing of certain state and foreign income taxes if applicable. The form includes a brief description of the corporation’s operations and asks for information regarding the corporation’s income and expenses.
How to Order California Incorporation Service
The California Secretary of State is the agency that provides incorporation services. You can contact them by phone (800-732-1471), dialing 1-800-777-3761, completing a form on their website, or submitting an email request.
For example, if your corporation is formed on or after July 1st, 2012, you must file a Certificate of Amendment with the California Secretary of State. For a corporation formed prior to July 1st, 2012 you may need to file a Certificate of Correction with the California Secretary of State.
Why Form a Corporation in California?
California’s incorporation laws are not unique in that they inherently contain provisions for faster start-up and better management of business affairs. However, the advantages to incorporating in California are worth noting. Here are just a few:
- The number one advantage to incorporating your business in California is the low cost associated with doing it. Business owners will find that much of the same paperwork involved in registering a corporation costs more money in other states.
- Another advantage of doing business in California is the Paperwork Tax Credit. This tax credit is a refundable credit that is available to California corporations that are subject to statewide employment taxes and pay their employers $100 per employee or over $500,000 in total wages per year. In order for you to be eligible for this, you must file the Annual Information Return of each California employer (Form RA-1) by January 31st.
How to Get a California Certificate of Good Standing
You can order a Certificate of Good Standing from the California Secretary of State.
How to Dissolve a Corporation in California
If you want to dissolve a corporation in California, you will need form FTB 3519. This is the Official Dissolution Notice that you will file with the California Secretary of State. This form will notify them that you are dissolving your corporation, and they will then prepare a Certificate of Dissolution, which is completed by the Secretary of State and mailed to you.
You then take this Certificate of Dissolution and provide it to each taxing authority to which you are required to file an Annual Return or Tax Return.
Should I Form a Corporation or an LLC?
If you have an excellent business idea and think that it would be best for your company to be a corporation, or if your current business is a corporation, you should probably form a corporation. However, there are many benefits to forming an LLC.
If you decide to form an LLC in California, you can put yourself in the position of having more flexibility. The California Secretary of State offers the following advantages of LLCs:
LLCs can issue ownership shares that will allow them to have members. In addition, LLCs are not required to provide financial statements or to pay state taxes on their income.
If you do decide that an LLC is right for your company, be sure to check with your local agency to ensure compliance. In California, LLCs are not required to register with the California Secretary of State in order for the business organization to be valid and legitimate. However, you may want to consider doing this in order to protect your company’s interests.
What Type of Corporation Should I Form?
You should decide what type of corporation you want to form based on the type of business you are trying to enter into. Below are some of the most common types of corporations.
S-Corporation: An S-corporation is a hybrid or a combination of a corporation and an LLC. It combines the benefits of both entities, only having one set of state filing and reporting requirements.
Limited Liability Company (LLC): An LLC is a business structure that is not a corporation. It protects the owners of the company from being held personally liable for their business’ liabilities. State filing requirements and fees associated with LLCs are usually much less expensive than those associated with corporations.
Stock Corporation: A stock corporation must issue some type of stock to its shareholders if it wants to sell shares in connection with raising capital for the corporation’s operations.
Can a Non-Citizen Start a Corporation in the USA?
Non-citizens have the same right to form corporations as US citizens do. There are some restrictions on limited partnerships though. Non-citizens cannot be general partners, but they can be limited partners if they get a work visa.
How Do I Choose a Business Name?
California’s laws governing business names have been in effect since 1977. They say that a person or entity cannot use a name that is identical to the registered name of another entity, including its sale.
Be careful when you choose a business name that it is not similar to another existing one. For example, if you choose the same name as an already existing corporation, you will likely not be able to register for your new business with the Secretary of State until both entities have their names changed.
What is the Corporation Tax Rate?
For the year 2013, the California state corporate tax rate is 8.84%.
Do I Need a Lawyer to Form a Corporation in California?
Although you do not need an attorney to form a corporation in California, you may want to hire one before you file your paperwork with them. If your corporation is going to have employees, it will be required to give any of those employees stock options. The paperwork for doing this can be complex and may benefit from the assistance of an attorney.
Why does my California corporation need an EIN?
A Federal Employer Identification Number (EIN) is a nine-digit number that identifies an employer to the IRS and is used to file Federal tax returns. It is also used throughout a corporation’s and LLC’s financial transactions. Without an EIN, your corporation will probably not be able to do many things legally, such as take out loans, make investments or issue stock.
How Many Members Are Required for a California Corporation?
California requires at least one shareholder member in order for a corporation to be formed.
How do I get an EIN for my corporation?
You can get an EIN by completing Form SS-4. The easiest way to do this is through the IRS website. You will need to input your social security number, the name of the corporation, its state of incorporation, and its principal place of business. Once you fill out these fields, click on “Continue”. On the next page, you will need to enter the following information: your name, address, and telephone number. Once you have finished entering this information click on “Continue”.
The next page you will fill in is the “Entity Information”. On this page, you need to enter the following information: your business’ mailing address and type of entity. This will typically be reflected as a “corporation” or a “limited liability company”. After filling out all of this information, click on “Continue”. You will then be directed to a new page where there will be a barcode. Print this out and mail it to the IRS.
You will receive your EIN in 10 to 15 days. Once you have your EIN, fill out the rest of Form SS-4 and send it back to the IRS at Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999. The Form SS-4 is a relatively simple application form.
How can I submit the California Articles of Incorporation?
To submit your Articles of Incorporation to the State of California, you must complete a form called “Articles of Incorporations” on the Secretary of State’s website. The state accepts submissions from November 1st through April 1st each year. The site will ask for your information such as your company’s address and phone number, its name, and information about its directors. Also, the company will need to be registered with the Secretary of State in order to establish a business identity within the state.
How to Form a California Corporation
California Corporations Need to have a Principal Place of Business
In order for a corporation to be formed in California, it must have a principal place of business and its principal place of business must be within the state. This means that your company must have an office that is physically located in California. You may also reserve a post office box address that you can use as your principal place of business.
How to Incorporate in California
To form a corporation, you will need to create and file the Articles of Incorporation with the Secretary of State. The company will need a registered agent who is an individual person or a business entity (a limited liability company or a corporation). He or she will be the person who accepts service of process papers and other official correspondence on behalf of the business.
What is the tax rate for S corporations?
An S corporation is a pass-through entity, meaning that the income, losses, and credits are passed through the business to its shareholders’ personal 1040 federal income tax returns. Income is not taxed at the corporate level. Instead, it is taxed to individual shareholders based on their portions of ownership in the company.
How to form an LLC in California
1. Choose a name for your LLC
You must pick a unique name as your business name. Your LLC’s name must contain the words “Limited Liability Company”, or an abbreviation of those words, at the end of the name. A registered agent must have a street address in California to receive service of legal process papers on behalf of the corporation or Limited Liability Company (LLC). Owners do not need to be present in California to do business in the state, and there is no requirement that you live there.
2. Choose a registered agent
A registered agent is an individual or business entity that acts on behalf of the LLC. The registered agent must be licensed as a California business entity (CA) and will provide legal services to the LLC for a fee. The registered agent can also receive, process, and forward service of process papers for the corporation or LLC in California. To locate an independent registered agent in your area, contact a secretary of the state office that oversees your state and ask for information on their services or company registration requirements.
3. Prepare a Minutes of Organization document
You should gather the names and addresses of all your members. You will also need to create and maintain minutes that include the LLC format. The minutes should show the exact date of formation and the name, address, and signatures of all the initial members as well as an overview of what your corporation does, who its managing member is, what its capitalization is, and if it is a member-managed or manager-managed LLC.
4. Choose a tax identification number (EIN)
You will need to obtain a federal employer identification number from the Internal Revenue Service (IRS). In California, there is no requirement for an EIN for LLCs; however, if you plan on applying for business licenses or permitting in the state of California, they may require you to furnish this information. Apply for an EIN online or by going to your local IRS office.
5. Obtain a business license
To get a license for our LLC will need to obtain a business license from the California Secretary of State before opening bank accounts, forming contract agreements, or completing important documents. You will need a registered agent to conduct business in California.
You may also register for a different type of California permit if your type of business requires one. There is no fee associated with filing or renewing your corporate or LLC business license.
6. Create a bank account
Your California business will need a bank account to receive deposits and send payments to the holders of the corporation or LLC. You may also choose an alternative method for receiving funds into your corporation or LLC. There is no fee associated with opening a California bank account.
7. File an Application for Certificate of Authority (CA)
A Certificate of Authority is required before forming your corporation in California. This document is typically filed by the registered agent. The CA is usually distributed by both the Secretary of State and the California Business Bureau (CBB).
8. Form a series of contracts or documents to show that you are operating as a corporation or LLC
You will need to create a number of California corporate and limited liability company-related documents. These contracts should include an organizational structure chart showing how you have organized your business, as well as other important information on your organization such as directors, shareholders and other information about the LLC. You can also create a contract that deals with your business assets.
9. File articles of incorporation (CA) with the Secretary of State (CA)
You will need to file articles of incorporation in order to formalize your business as a corporation or LLC in California. The articles must include information on directors, registered agents, and the location of your principal place of business. If you have chosen a corporate name, then the Secretary of State office will review it to check that it is not already being used by another corporation or LLC.