If you own a business in California that is not incorporated, you might be missing out on some major advantages.
Basically, incorporation is the act of creating a company or other corporate entity. It is a legal process and it can be very complicated.
One area that causes much confusion for people who want to incorporate in California is the cost. As a business owner in the Golden State, it makes sense to understand the cost to incorporate in California before you begin the process.
This is something that you have to financially prepare for well in advance.
Why Incorporate in the First Place?
Before we talk about the cost to incorporate in California, let us look at the benefits it provides.
As mentioned earlier, those who do not incorporate are missing out on some great benefits.
The biggest benefit of incorporation lies in the concept of limited liability. Essentially, this means that the personal assets of the owners are protected.
Once incorporated, the company becomes its own legal entity, separate from its owners. It can do things like own property, enter into contracts and sue in its name.
As far as the law is concerned, you and the business are now separate entities.
However, if you treat the business’s assets, such as bank accounts or vehicles, as your personal assets, the veil of incorporation can be lifted.
You personal assets will no longer be protected
With limited liability, the company or corporation is solely responsible for any claims made against it. You, as the business owner, are not responsible for its debts or any claims made against it.
Other than having limited liability, here are other benefits of incorporation:
- Perpetual existence: With other business structures, such as a sole trader or partnership, the entity changes in the event of the death of the owner or one of the owners. When incorporated, the entity remains the same until insolvency.
- Professionalism: Once you incorporate, people are more willing to deal with your business. This is because an incorporated entity is perceived as being more stable than a sole trader or partnership.
- Easier access to capital: Corporations can issue stock. This makes it easier for them to raise capital than other business structures.
- Capacity to sue: A company can sue individuals and businesses in its name. However, it can also get sued as well (in this scenario, you and other directors are not liable for the suit).
If you want to enjoy the above-mentioned benefits or find out what other benefits you can enjoy with incorporation, drop me an email at firstname.lastname@example.org.
Cost to Incorporate in California
When it comes to the cost to incorporate in California, it comes down to paying attention to the below fees.
I will briefly discuss what they are and how much each one costs in the state of California. And if you need further information about them, get in touch with me right away.
I will be more than happy to help you understand them in our FREE strategy session.
Reserving Business Name Fee
Before beginning the process of incorporation, you need to reserve your business name.
Your company or corporation must have a unique name – it cannot be called by the same name as any other corporate entity. This can cause a lot of confusion.
And even if you don’t intend to form a corporation in the immediate future, it is worth reserving your business name.
Choosing a business name, especially a perfect one, is not easy. It can be frustrating to decide to finalize the incorporation process only to discover that the name has been taken.
It will cost you $10 to reserve a business name in California. If you want to search if your name has been taken, you will have to pay $4.
Incorporation Filing Fee
You can’t incorporate without filling the articles of association (AoA).
The AoA is an important document. It contains the details of your company or corporate structure
It defines the roles of each member, the nature of your business and how the shareholders can exert control over the board of directors.
When filling the AoA in California, you will have to pay $100.
On top of that, you will also have to pay a special handling fee of $15, which is non-refundable.
Annual Report Filing Fee
Throughout the year, your company or corporation will be conducting business activities.
All these activities go into the annual report, which must then be filed.
This report is crucial for the state, stakeholders and interested parties to understand what your business is currently doing and its financial status.
Filling the annual report in California comes with a $25 filing fee.
Also, during the incorporation process, you will have to submit an initial report, which details pertinent information about your company.
This also costs $25.
Annual Tax Fee
There is also an annual tax fee that some corporations have to pay to the California Franchise Tax Board.
The minimum annual tax fee in California is $800. It must be paid whether your business makes a profit or a loss.
Keep in mind that $800 is only the minimum. Depending on your profits, you might be required to pay additional fees.
These include LLC fees and corporate tax fees.
Business License Fee
Finally, there is a business fee that you need to pay in order to operate in the state.
After paying this fee, you will obtain a business license or business tax certificate.
Not all businesses will pay the same licensing fees. It is wholly dependent on the size of your business and the number of people at your employ.
Basically, you should expect to pay a business licensing fee of $50-100 in the state of California.
As an expert business lawyer, I can advise you and help you with the above-mentioned fees and more in regards to incorporation. Contact me now at email@example.com to enquire about my services.
What to Do Next
So there you have it: now you know the cost to incorporate in California.
Basically, it comes down to paying these fees:
- Reserving business name fee
- Incorporation filing fee
- Annual report filing fee
- Annual tax fee
- Business license fee
Once this is done, you can enjoy the benefits of incorporation.
Overall, the benefits of going through this process outweigh the fees you have to pay. And it is something you need to start doing right away.
Interested in incorporating your business in California?
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