There are many benefits to incorporating a business in California. For instance, the state only requires three officer positions when filing – President, Chief Financial Officer and Secretary. All three of these positions can be carried out by the same person, and if you’re the sole business owner, that person can be you. When incorporating in California, you can be incorporating a completely new business or one that’s already in existence.
Let’s take a look at the steps required to incorporate in California.
Select a Name for your Business
Start by choosing a name for your business that is available and meets California’s rules and requirements. The name you choose must not be likely to mislead the public. Think long-term and where you see the business going, and choose a name that not only fits the company’s mission now, but in the future as well.
Conduct a corporate name search with the state to make sure the name you’ve chosen is available. You may also want to conduct a domain name search and trademark search as well. Once you’ve chosen the name and determined it’s available, register it with the state.
Select your Incorporation Type
Next, choose a legal business structure for your organization. These are known as “legal entities” and your options include:
- C corporation
- S corporation
- LLC – Limited Liability Company
- LLP – Limited Liability Partnership
When choosing a business structure, there are a number of factors to consider, including the following:
- What are the required ongoing filings and fees, and how will they affect your company?
- This is a primary consideration when choosing a business structure
- California requires an $800 minimum franchise tax for all corporations and LLCs
- Corporate formalities
- How strict are the regulations for the type of entity you’re considering, and does it impose strict ongoing requirements? If so, how will this affect the business?
- Management requirements
- What are the requirements for who can and cannot manage the business, and how strict are those requirements? How will this affect the type of business you run?
- How many directors can the legal entity have, and how many are required at a minimum?
- Personal asset protection
- A critical aspect when deciding what type of business structure to form.
- Incorporation offers limited liability which means greater asset protection than a sole proprietorship or partnership.
- Does your business provide a professional service?
- In California, professional organizations must have a particular legal structure, normally an LLP.
- The type of corporation you end up choosing to form may depend on state licensing requirements.
- Contact your licensing board to learn its requirements.
- Corporate bylaws
- Bylaws are the internal governing document of the corporation and should spell out the rules and procedures of the corporation.
- An initial meeting with any other members of the corporation should be conducted in order to establish the corporation’s bylaws.
- In California, a corporation is required to establish bylaws, but they do not need to file them with the state. Instead, they can be kept with the company’s documents.
- The types of regulations you need to follow depend on the type of legal entity you form.
- That might include holding formal meetings and keeping records and minutes.
File the Articles of Incorporation
Depending on the type of corporation you choose, there are different requirements for the Articles of Incorporation. California requires that authorized shares of stock and par value be listed. In some states, changing the number of shares or their value will incur additional fees, but that’s not the case in California.
A corporation must also designate an Agent for Service of Process, also known as a Registered Agent, and list the Registered Agent’s name and physical address (no P.O. Boxes). The corporation’s Registered Agent must be available during normal business hours to accept tax and legal documents on behalf of the corporation. In California, the corporation’s officers are not required to be listed on the Articles of Incorporation.
Taxes, Licenses and Fees
The next step is to obtain an EIN, or Federal Employer Identification Number, available for free from the IRS. This number is used for tax purposes for both the federal and state levels, and it’s usually required by banks to open a business checking account, which you will need to do.
If your corporation requires any business licenses or permits from the county, city or state, this is the time to obtain them. Many types of businesses require at least one type of business license or permit, and some require multiple licenses or permits.
File an Initial Statement of Information with the State
The state of California requires that, within 90 days of filing the Articles of Incorporation, the organization must file an Initial Statement of Information SI-550 with the California Secretary of State. The form must include the following:
- The corporation’s name
- California Secretary of State’s file number for the corporation
- The corporation’s street address of its principle office
- The corporation’s mailing address if different than above
- The corporation’s registered agent details
- The corporation’s general type of business activity
- A filing fee of $25
California has requirements for the number of directors of corporations based on the number of shareholders in a corporation.
- A corporation with three or more shareholders must have at least three directors.
- Conversely, if a corporation only has one shareholder, it must have one director, but can have any number more than that.
- The same goes for a corporation with two shareholders. It must have at least two directors, but can have more than two as well.
California has no requirement on where a director must reside, which means a director does not need to reside in the state of California. The names and addresses of directors are not required to be listed in the Articles of Incorporation.