If you’re interested in starting a business in California, why not look into forming a California corporation. Here’s what you need to know!
A corporation is a very popular type of business entity that works well for smaller, private businesses but also for larger, publicly traded companies. A corporation is owned by shareholders who own stocks in a company; in California there is no limit to the number of shareholders a general corporation may have, however S-corporations are limited to 100 shareholders. Shareholders are responsible for selecting a corporation’s Board of Directors, and they elect officers; together the Board of Directors and the officers manage the day-to-day operations of a corporation. Once a corporation is officially established, a corporation may offer its shareholders limited liability protection, shielding them from the corporation’s debts and legal obligations.
Reasons to form a California corporation
California is one of most popular states in the U.S to form a corporation in. California has more than 4 million small businesses currently operating, and with a slightly higher income population than the national average, California is a very lucrative location for investments and businesses of almost every kind. Most popular industries in California include finance and e-commerce businesses, real estate and rental leasings, professional and business services and governmental enterprises.
Aside from being one of the biggest commerce and business hubs in the U.S, the popularity of corporations in California is also explained by the tax benefits afforded to corporations in the state. Corporate tax in California is 9%, which is slightly higher than the rate in surrounding states, but gaining tax benefits may offset this slightly higher rate. Although corporations are subject to double taxation, first on a corporation’s profits, and again on shareholder dividends, if certain requirements are met, a corporation can elect the S-corp tax designation. Selecting the S-corp tax designation will allow corporations to be taxed similar to a partnership. Furthermore, California also offers corporations certain tax credits to encourage corporations and other businesses to keep and develop their business in-state, examples include new employee hiring tax credit or research and development tax credits, to mention a few.
How to start a corporation in California
Step 1: Name your corporation. When thinking of a name of your corporation, think of one that is catchy and memorable, and unique as possible. This will be important when you conduct a name search of the business name you’ve chosen, this can be done by searching the business name database on the California Secretary of State website. If you have a name in mind well before incorporation, it may be good to think about filing a Name Reservation Request with the California Secretary of State for a filing fee of $10. When naming your corporation, it’s important to keep in mind California Secretary of State naming guidelines for corporations, which you can also find on the California Secretary of State website.
Step 2: Select a California registered agent. In California, a registered agent is generally referred to as a service of process agents. A service of process agent’s main duty is to accept official documents and tax forms, legal notices and government correspondences on a corporation’s behalf. The service of process agent you choose must be available during state business hours to accept all documents and mail sent to the corporation, whether they are an individual agent or a company authorized to provide the services of a service of process agent.
Step 3: Appoint corporation directors. A requirement of corporation formations is electing the corporation’s initial board of directors (or director), who will be responsible for overseeing the management of the corporation until the day the first shareholder meeting is held. A corporation’s directors are responsible for the adoption, amendment, and annulment of operational bylaws and the selection, supervision and dismissal of officers.
Step 4: File incorporation forms. To officially incorporate your corporation in California, you need to file a California Articles of Incorporation form with the Secretary of State. In the Articles of Incorporation, you will need to disclose, for public record, the business name and primary address, the appointed service of process agent’s name and primary address, the number of shares the corporation is legally allowed to issue, and the name and address of the corporation’s incorporator, among a few other details. The filing fee of an Articles of Incorporation form in California is $100, which also adds to the attractiveness and popularity of California as a state to incorporate in.
It’s important to know what comes after state filing: setting up a corporate record book, preparing bylaws, conducting the first board of director meeting, obtaining an EIN and business bank account, and researching the required business licenses, if you haven’t done so so far. If you want to know more about how to incorporate in California, TRUiC’s website offers a host of resources, tools and guides to get you started today.