How to Incorporate in California: Step-by-Step Guide

It’s all smiles and sunshine in California, but starting a business in the Golden State might prove a bit tricky.

Don’t worry!

As a business lawyer, I’ve helped thousands of entrepreneurs get on their feet and incorporating in California is right up my alley.

In fact:

I’ve recently drawn up a helpful step-by-step guide for anyone looking to start a business in the USA. Be sure to get in touch at sam@mollaeilaw.com for further assistance.

Rest assured:

California happens to be among the wealthiest business states in the USA.

Whether you’re looking to start something small or build an empire, you will find the state more than accommodating your unique business ideas.

The region is considered a paradise for start-up entrepreneurs and, while you’ll need to carefully navigate around laws and regulations, it’s no secret why major industries like agriculture, technology, and entertainment are rooted deeply in the state.

Simply put – California is a haven for business success!

Before we get started, I should mention that a business is no child’s play and a one-size-fits-all approach does not exist, so expect a fair amount of trial and error before your unique business idea becomes a success.

If you’ve come this far, I’m assuming you have a few ideas already worked out:

• A well-thought-out business plan for instance;
• potential and existing sources of income;
• and a general vision of your business’s future.

Today’s topic generally takes off from there. With that said, let’s take a look at the 5 actions needed to incorporate in California.

 

Action 1: Consider the structure of your business

As with other states, California generally offers three forms of business: DBA, Corporation and Limited Liability Company.

DBA

DBA stands for “doing business as” and, as the name suggests, means the entrepreneur and the business are one structure in the eyes of the State.

This form of business is also known as “the one-man business structure” or “sole proprietorship”. It is generally taken up by partnerships and single-run practices.

For instance, adopting DBA status would allow Jane Smith, an IT graduate, to open and run her business under the name Smith IT solutions. However, Smith IT solutions would not obtain a separate legal identity, so all of the debts and expenses of the business are actually the debts and expenses of Jane Smith.

On the other hand, all the income and profits associated with Smith IT Solutions would belong to Jane Smith herself.

Consider a DBA if you’re after a simple business structure that involves limited profit sharing and complete control over the business decision-making process. You should also carefully consider the risks and liabilities that come with a DBA business status.

Corporation

A corporation is more complex than a DBA. Think of directors, shareholders and a long list of middle managers.

In a corporation, the owner(s) of the business and the business itself are legally recognized as two separate entities. This means that the owners are not directly associated with the debts and expenses of the business.

Let’s reconsider Smith IT Solutions, a company owned and run by Jane Smith. As a corporation, if the company were to be sued, it would first be investigated in its own capacity before the actions of the owner are scrutinized.

I should point out that certain legal and regulatory violations such as fraud and malpractice can lead to the investigation of the business owners.

LLC

Then you get an LLC, formally called a limited liability company. This form of business is fairly new and can be seen as a compromise between the benefits of a DBA and a corporation.

LLC status allows a business (even a very large one) to direct control over the company while enjoying the benefits of a separate legal persona.

If you or a group of individuals are thinking of a fairly small, mid-sized or large business structure with fewer tax implications and the advantage of direct control, then an LLC might be your best choice.

Still unsure?

Go ahead and contact me at

for a discussion about which business structures best accommodate the business idea, you have in mind.

 

Action 2: Name your business

Roll your eyes all you want, but choosing an appropriate and legal business name is not that easy.

Tons of business problems and legal issues occur from the way business is named and the restrictions that come with this. It is not uncommon for states to put regulations on how to name your business and California is no exception.

In California, businesses are restricted to the following naming policies:

1. The terms “insurance company”, “trust”, “trustees”, “insurer” or “bank” can’t be included in the company title. In fact: Any term that implies the business takes parts in insurance risks or provides insurance policies is forbidden from being included in your company’s name under California law.
2. The appropriate company identifier must be included in the name. This helps regulators, lawmakers, and the public identify your business, the way in which it must be treated and the risks associated with conducting business. Corporations, for example, are obliged to include the identifier “incorporated”, “corporation” or an abbreviation of those words in their business name.
3. In California, your business may need to form a professional corporation, or PC, depending on its purpose. This includes companies specializing in law, accounting, architecture, medicine and a lengthy list of other professions.

So, how will you go about naming your business?

If you’re still unsure about how to name your California-based business, get in touch with me at sam@mollaeilaw.com for assistance or advice about navigating through California’s hefty naming restrictions.

 

Action 3: Get your business registered.

This is where all your business planning and research get put into action!

You’ve already considered the right business structure and the appropriate name. Now let’s take a look at what it takes to register your chosen business.

Registering a DBA?

If you want to register a California-based DBA, you will need to file with the county. Details about which forms to submit can be obtained from your local County Register.

Ensure that you register the correct documents then publish a notice in a newspaper approved by the county.

Note: The state requires this publication to be visible in an approved newspaper for 4 consecutive weeks. Once with this is done you should obtain your Proof of Publication after the 4th week and file it with the county clerk within 30 days.

It should also be pointed out that many approved newspapers conduct this service fully for the business. However, it is still the responsibility of the business owner to ensure that all the files and forms submitted appropriately.

Want to register an LLC?

Considering the facts mentioned thus far, you may be in favor of starting a limited liability company.

In California, an LLC is registered by filing the business’s Articles of Organization, referred to as Form LLC-1, with the LLC division of the Secretary of State.

You will then be required to formalize your LLC by conducting an Organizational Meeting. This meeting involves the distribution of Member Certificates and takes stock of the business contributions along with the operating agreement.

Note: Even if you are operating the LLC by yourself, you would still be required to hold an Organizational Meeting.

Need to Register a Corporation?

Much like LLCs, corporations are required to hold Organizational Meetings as a requirement for registration. However, you should first file form ARTS-GS with the Corporate Division of the California Secretary of State.

Be sure to get in touch with me at sam@molleailaw.com for any concerns about registering a business in the USA.

 

Action 4: Retrieve your company’s EIN

EIN stands for Employer Identification Number. Think of it as your business’s social security number.

Remember:

A DBA business is not legally obligated to get an EIN, although you would be allowed to obtain one if you felt it necessary.

Why get an EIN if you’re a DBA?

Your EIN number can be used to open business bank accounts, create company credit and distinguish personal affairs from business transactions.

EINs are not optional for LLCs and Corporations. These two business structures are legally required to get their own numbers since they hold their own legal identities.

 

Action 5: Ensure your business is able to function.

You’re almost there!

The completion of the first 4 actions only ensures the successful registration of your business. However, maintaining your business on the right side of State policies and regulations is an ongoing process.

Action 5 involves three processes:

Securing your company’s business permits and licenses.

The industry and manner in which your business operates may require you to secure certain business licenses and permits. Bear in mind that application procedures and qualifying criteria can vary from city to city.

Open a business bank account.

For the sheer simplicity of separating personal and business transactions, a business bank account will need to be opened. Your business will also require its own credit line as it grows.

Note: A business bank account can be opened with your company’s EIN number. LCCs and Corporations are bound by this. DBA owners have the option to secure business bank accounts under their own social security number or an EIN.

Adhere to the continued requirements of your business structure.

Here are a few additional notes about your business.

• Taxes: Business owners should be aware that the California Franchise Tax board places a tax on Corporations and LLCs. The lowest amount payable is a minimum of $800 per year, but this amount increased depending on your business’s revenue).
• If you run a DBA: DBA names must be renewed. The name by which you chose to operate is only valid for 5 years. This is unless you change the name of your business or other information listed on the DBA.
• Running an LLC: Filing your company’s “Statement of Information” every two years is mandatory. This document assists officials with staying updated on the state on your business premises and other affairs.
• As a Corporation: Every year you’ll need to file the “Statement of Information” which updates the state on your business address and other things. LLCs and Corporations will pay a filing cost of $25.

Oh, before you go…

Your interest in registering a business in California can be addressed by seeking professional business and legal help. However, note that any concerns in this regard should ideally be directed at the California Secretary of State’s office.

The Secretary of State is the backbone of California businesses and their respective registration procedures. The office alone processes millions of filings and records requests every year.

As today’s piece has shown, several key actions must be taken before you can confidently launch a business in the state of California. These procedures will, more often than not, vary according to the type of business you want to start, it’s the county of operation and the city in which the business conducts business.

For this reason, you should ensure that you have considered the specific rules and regulations within the county and city in which you want to conduct business. Also keep in mind any other agency requirements that involve zoning, taxes, employment, licensing, and permits.

Luckily enough, the Golden State has the answers to many of your registration concerns readily available.

It is called the “Starting a New Business in California” brochure and ought to be considered a general tool to help you broadly assess how to start a business in the State. However, it is certainly not as a direct step-by-step guideline. In order to maintain your business, there may be recurring reporting, fees, taxes and filings that the business must provide to state, local, and federal agencies.

 

What To Do Next

Starting a business can seem like a lot of work, and that’s mostly because it is. Yet the entire process can be simplified with the right advice and research.

Once again, be sure to consider the help of legal experts to help keep your business on the right side of  California laws and regulations. For more details about how to incorporate in California and other states, contact me at sam@mollaeilaw.com.