Have you wondered whether you should form your corporation in the prospering state of California? Did you even know that you could form your business in California regardless of where you live?
If you are wondering whether incorporating in California is right for you, then you are in the right place!
In this article, I am going to tell you three reasons why you should incorporate in California.
If you are wondering, then you are in the right place! In this article, I am going to tell you three reasons why you should incorporate in California.
In summary, if you live in California then you should form your corporation in California. However, even if you do not live in California, there are some reasons why you may want to consider forming your Corporation in California.
As a business lawyer, I’ve assisted 1000’s of entrepreneurs like you start their California Corporation without dealing with complicated legal forms, and I’m the only business lawyer whose service is backed by more than 1,000 5.0 Star Google Reviews.
Now let’s begin!
Why You Should Incorporate in California if You Live in California
You may not have known that you can choose the state that you incorporate in regardless of whether you live in the US or outside of the US.
In the vast majority of cases, forming in the state in which you live will be most beneficial to you.
Benefit #1: Incorporating in California Will Save Money on Refiling Fees
Often times entrepreneurs think that filing in another state will save them money because they will be able to avoid the hefty annual fees in their state.
This is not true.
If you operate your business in your home state but file it in another state, then you will have to register it as a foregin corporation.
This means that you will have to pay the filing fees and pay annual registration fees in each state – you do NOT want to do this. Therefore, if you live in California, then you should incorporate in California if you want to avoid multiple refiling fees.
I often get asked, but what if my business is online? The same rules apply. If you are operating your business entirely online but you are running it in the state where you live, then you will still be subject to both filing fees if you register in another state.
You will also have to pay for a registered agent service in the other state that you file in because you will not have a physical presence in that state. This can cost you around $99 per year. See our article about registered agents.
Benefit #2: Incorporating in California You Will Save Money on Taxes
Incorporating your business in a state that you do not reside in may also subject you to more tax obligations.
For example, if you incorporate your business in another state such as Delaware, the company will be required to pay the annual franchise tax in both states. This means that you will have to pay California’s $800 minimum annual franchise tax as well as Delawares.
As mentioned above, this is because you are required by law to file in the state as a foreign corporation when you are doing business in that state.
Therefore, if you live in California, then you should incorporate in California if you want to avoid having to pay more in taxes.
Benefit #3: Incorporating in California Will Save You Time
Incorporating in California will save you time because you will not have to satisfy two states’ reporting requirements each year.
Each state will have specific, deadlines and obligations that you will have to follow. Having to research and abide by each states’ requirements is not something a new entrepreneur should be spending his time on.
Therefore, in addition to the financial burdens that you will incur if you live in California but incorporate in another state, you will also incur time burdens.
Overall, if you live in California you should incorporate your business in California. Don’t let Wyoming and Delaware mislead you unless your accountant provides you with specific reasons telling you why another state will save you more money.
See our article explaining why it is often times more beneficial to incorporate in your home state.
Why You Should Consider Incorporating in California Even if You Don’t Live There
There are exceptions to every rule… at least when it comes to the law.
Even if you do not live in California it may still be beneficial for you to form your corporation in California.
There are two main scenarios that will apply here.
The first is that you live in a different state but want to incorporate in California. This scenario will require that you pay two registration fees, subject yourself to higher taxes and have to pay for a registered agent.
The second is that you do not live in the US and you want to file in California. This scenario will require that you pay California’s VERY HIGH minimum franchise tax fee of $800 per year.
So you might ask… WHY WOULD SOMEONE DO THIS?
The answer is that most of the time the benefits of incorporating in California when you do not live there will be outweighed by the negatives.
However like I said above, there are exceptions to every rule and everyone’s scenario is different.
Benefit #1: California (Just The State) is One of The Largest Economies in The World
Despite the increased financial responsibilities and the increased burden on your time, an entrepreneur may decide that it is more beneficial for him to incorporate in California because of its thriving economy and its growing business atmosphere.
You as an entrepreneur may find that it is more beneficial to pay the additional fees associated with incorporating in California because it will result in you being closer to the action.
Of course this is not always the case, and you will have to weigh the pros and cons to make a calculated decision.
Benefit #2: Incorporating in California May Provide You With Favorable Tax Treatment
As a result of California being one of the largest economies in the world, the state has adopted favorable regulations and taxes for entrepreneurs.
This means that the downside of having to pay extra fees each year may be outweighed by the tax benefits that California offers.
One of the main tax benefits is that when you register in California as a corporation, you may be eligible to have access to corporate small business tax rates which would be lower than the regular tax rates.
However, keep in mind that it is always important to check with an accountant before making an incorporation decision based solely on taxes.
Benefit #3: Incorporating in California Can Provide You With More Anonymity
Another benefit of incorporating in California is that in California you can choose to be more anonymous. Often times entrepreneurs will choose to be anonymous for safety reasons so that stalkers and criminals will not have access to their information.
In California, corporate shareholders and managers can enjoy the benefit of being anonymous when they incorporate in California.
Only the director and resident agents are required to publicly disclose their names. However, you can hire a registered agent company and use their contact information if you want to increase your anonymity.
Although you will not be completely anonymous to everyone such as the IRS or the government, incorporating in California can increase your anonymity to the general population.
Benefit #4: Incorporating in California May Provide You With More Credibility
Although this is not always the case, incorporating in California may be worthwhile because it could give your business more credibility.
Being incorporated in CAlifornia may make you more attractive to other California businesses, investors, and customers.
Essentially you can view this as having a home team advantage because your investors and customers are in your backyard and may be more inclined to give you favorable treatment.
Benefit #5: California Corporations Provide a More Flexible Management Structure
California corporations have more flexibility when it comes to the management structure. As mentioned above, a corporation requires there to be directors, officers and shareholders.
In California there is more flexibility when it comes to who can be the officers. The only officer positions that are needed to form a corporation in California are (1) president, (2) chief financial officer, and (3) secretary.
More importantly, although three officer positions are required to form a corporation in California, you can fill all three roles with just one person.
Overall, if you are a U.S citizen then often times it will be advantageous to incorporate in your own state. However, this is not always the case and sometimes even when you are not a U.S. citizen or don’t live in California, it may still be beneficial to incorporate in California.
If you are still not sure whether you should incorporate in California, then email me at firstname.lastname@example.org.
What to do Next
As a Business Lawyer for Entrepreneurs, I’ve assisted hundreds of clients form their California Corporations and I can definitely help you start yours.
We offer a comprehensive California Package that includes everything you need to start your California Corporation that includes:
- Registered Agent Service
- Getting you your EIN
- Filing your articles of incorporation
- Drafting personalized bylaws for your corporation
- Checking to make sure the name is available
- Filing form 2553 to get S-Corporation tax status (if we decide that it is beneficial for you)
- Filing your statement of information
- Providing you with your corporate minutes,
- Tax Assessment With Expert Accountant to Help you Save Money on Taxes.
- Comprehensive Business Welcome pack.
- 5 essential business templates for new entrepreneurs.
- All state filing fees included.
- Offering Post-Incorporation Advice and Support for 1 year
- Offering you peace of mind with a business lawyer on your side to make sure that you are set up correctly and in compliance with federal and state requirements.
Interested in incorporating in California?
Start Your U.S. Business Confidently
Join 3,000+ Entrepreneurs Who Have Successfully Started Their U.S. Business