You’ve decided to start a new business in the state of California. You’ve done the research on various business structures and corporation seems to be a good fit.
While you should absolutely reach out to an experienced corporate attorney such as myself at email@example.com to ensure corporation is the right choice, the next step is simple.
How Do You Form a Corporation in California?
If you follow my ten-step process, it isn’t too hard!
1. Select Your Corporate Name
The name of your corporation needs to be unique to other businesses already established in the state of California.
It is also important that your business name isn’t misleading. It needs to make sense for what the business actually is.
You can also do a free preliminary check by mailing a Name Availability Inquiry Letter to the California Secretary of State’s office. Keep in mind, you have to mail it in as email inquiries are not an option.
Finally, you can file a Name Reservation Form for 60 days to prevent anyone else from taking the name. The fee is $10, and you must either mail the form in or hand deliver it.
2. Articles of Incorporation
To make your corporation official – and legal – you need to file the Articles of Corporation.
The file you send to the California Secretary of State must include the name of your corporation, the purpose, the name and address of the registered agent, and how many shares the corporation is authorized to distribute.
Articles need mailing addresses and street addresses – not P.O. boxes.
There is a $100 filing fee and it must be filed by mail or in person.
File Statement of Information
Within 90 days of filing the Articles of Incorporation and every year after you file, you must file a Statement of Information.
If you are a California corporation you file Form SI-200. If you are foreign, you file Form SI-350. You can file these forms online, by mail, or by drop-off.
The Statement of Information has a $25 filing fee.
Register as a Foreign Corporation Doing Business in California
While you do not have to be in the state to do business, you must register with the Secretary of State. Foreign corporations also need to appoint a registered agent that is physically located in the state.
You can file the Statement and Designation by Foreign Corporation form by mail or in person.
This form comes with a $100 filing fee.
If the name of the foreign corporation is not available in the state, you will have to qualify with an assumed name.
To form in the state of California, you must have a certificate that proves the corporation has been in good standing within six months prior.
3. Establish Registered Agent
Every corporation requires an incorporator – or registered agent – that resides in the home state. This individual needs to be in California to accept any legal paperwork on behalf of the company.
In some instances, business owners prefer to hire a registered agent from a private service company that specializes in serving as incorporators of companies.
I highly recommend contacting an experienced attorney such as myself at firstname.lastname@example.org for a little direction on choosing the best registered agent.
After all, this is a physical body in the state of California representing your business. You need to make sure it is someone you trust to do the job properly.
4. Corporate Bylaws
Bylaws are internal ground rules for how the corporation is to be operates.
This is not something you file with the state. This is not something you are legally obligated to have.
As a corporate attorney, however, I’ve added this to the list of steps because it is necessary. It legitimizes your corporation in the eyes of credits, the IRS, and financial institutes.
More importantly, everyone needs guidelines and ground rules.
5. Corporate Directors
In addition to the incorporator, you also need a board of corporate directors. This is just the initial board of directors as the shareholders will elect board members during the first shareholders annual meeting.
Your incorporator is required to file what’s called the Incorporator’s Statement listing the names and addresses of the initial directors.
While you need to keep this form your records, this does not need to be filed with the state.
6. Board of Directors Meeting
During the first board of directors meeting, they should appoint officers, establish bylaws, select a corporate bank, and distribute stock shares.
They should also establish the corporation’s fiscal year and adopt both the stock certificate form and corporate seal.
All the actions taken need to be documented by the incorporator in the corporate minutes. If the corporation is an S Corp, the first meeting should also include the directors adopting the S Corp status.
It can take anywhere from one to two weeks for the incorporator to prepare the minutes before passing them off to all the directors for their signatures.
7. Issue Stock
Take the time to issue stocks to your shareholders. While you are not required to by law, most corporations like to issue stock certificates.
8. California Tax Requirements
All California corporations – including foreign – are required to pay taxes to the California Franchise Tax Board (FTB) for doing business in the state of California.
They are also required to pay the annual minimum franchise tax of $800.
Corporations with a lot of income, may end up paying additional tax fees based on their annual income.
9. Tax and Regulatory Requirements
Taking steps that include obtaining a federal employer identification number (EIN) and electing the S Corp status for your business are crucial.
By default, the IRS sees all corporations as C Corp. You have to elect the S Corp status if you want to form as an S Corp instead.
You have to submit Form 2553 Election by a Small Business Corporation and it must be signed by all of the shareholders.
It is important to file the election within two months and 15 days of the start of the corporation’s tax year.
Depending on what type of business you manage, it is also important to obtain necessarily permits, licensing, and zoning.
I highly recommend speaking to an experienced business lawyer such as myself at email@example.com to make sure you have all your ducks in a row when it comes to taxes and regulations. Otherwise, you could end up in legal hot water.
10. Corporate Records Book
As you make it to the tenth and final step, you notice the paperwork is starting to pile up. A corporate records book is a crucial part of keeping things straight.
This isn’t something you are legally required to have or need to file with anyone, but this is something that keeps all your important paperwork organized.
Any corporate lawyer worth their salt will tell you a corporate records book is a must-have.
What To Do Next
As long as you follow this ten-step action plan, you should have no trouble forming a corporation in the state of California.
Please reach out to me at firstname.lastname@example.org if you need help with any of the paperwork. Getting the assistance of an experienced attorney from the start is better than having to redo paperwork after making mistakes by trying to do it on your own.