Choosing to file as a corporation in the state of California is one of the first steps in identifying yourself as a business entity. Corporations can vary in size, industry, and structure. Filing as a corporation tells others that you’re open for business and puts you in good standing with the state of California.
To establish your business, take a look at these comprehensive steps that can put your business on the path to success.
How do I form a corporation in California?
Steps to form your California Corporation
- Name Your Corporation
- Appoint Directors
- Choose an California registered agent
- File the California Articles of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary California Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit your corporation’s first report
To start a corporation in California, you must file the Articles of Incorporation with the Secretary of State. However, you’ll need to take further ownership with your corporation by naming your business, appointing those in charge, and creating bylaws for all parties to follow.
To simplify the process of forming a corporation in the state of California, we’ve put together 10 easy steps to form your business:
Step 1: Name Your Corporation
Your company name should be a unique moniker not assigned to or used by another company. As a corporation, you will also need to include some variation of “Incorporated,” “Corporation,” or “Limited” in its formal name. Abbreviations can also be used, such as “Inc.” and “Co.”; however, abbreviations are not considered alternatives to previously registered names. A name like “Golden State Co.” is considered the same as “Golden State Company” or “Golden State Inc.” Be sure to follow all state guidelineswhen choosing a name for your California company. This includes finding a unique name and omitting words that could be misleading to the public (using words associated with government entities, for instance).
Certain words are restricted without a particular license. For example, if opening a law firm, you’ll need to be registered with the state as a practicing lawyer before including “Lawyer” or “Lawyers” in your official corporation name. This is true for additional industries, such as banks and universities. Proper licenses allow you to move forward in these industries and in naming your company.
You’ll also need to check for name eligibility on the California Secretary of State website. If it’s available, consider filing a Name Reservation Request form to hold your name. This requires a $10 filing fee. You can mail the form with a self-addressed envelope to the Secretary of State, Name Availability Unit, 1500 11th Street, 3rd Floor, Sacramento, CA 95814, or drop it off in person at the Secretary of State’s office in Sacramento. Your corporation name will be reserved for 60 days, and the reservation can be renewed, although not for consecutive periods.
You can also look into a “doing business as” or DBA name. This allows your corporation to operate under a different name than its legal moniker. This is often done with businesses that want to use a different name for a new store or product line. You can obtain the requisite DBA name certificate and/or form from the appropriate county clerk’s and/or recorder’s office.
It’s a good idea to check to make sure your desired business name hasn’t been trademarked by someone else. To see if it’s been trademarked federally, check the United States Patent and Trademark Office (USPTO) trademark database. For trademarks within California, you can check the state database.
You also have the option of trademarking your official business name or DBA name. A trademark gives you a legal claim to a company’s name, slogan, or logo. While this isn’t required by the state of California, it might be worthwhile to trademark your corporation name.
California Secretary of State
P.O. Box 942870
Sacramento, CA 94277-2870
Once approved, you’ll receive a free copy. Certified copies can be received for a $5 fee. Trademarks can also be modified for a $30 fee.
State trademarks mean your brand or logo is only protected in the state in which you’ve filed. On the other hand, federal trademarks give you protection throughout the country, which is especially useful if you plan on doing business outside of California. You can find more information on federal trademarks at the United States Patent and Trademark Office (USPTO) website.
Even if you choose not to trademark your business name, you should make sure the moniker is available to ensure you are not infringing on anyone’s legal rights. If found guilty, you and your company could be punished by law and charged with hefty fines.
Step 2: Appoint Directors
In the state of California, corporations must appoint directors to oversee the business. Known as a board of directors, these seat holders will vote on and make decisions on behalf of the business. The directors will also have a set of guidelines to follow, as outlined by corporate bylaws. Company owners can serve as directors, but it is not a requirement. Owners can serve the company without sitting on the board, while board members do not have to have ownership in the corporation.
Under California law, a corporation must have at least three directors on its board. If there are less than three shareholders, it’s considered an exception. There must be an equal number of shareholders and directors. A single-shareholder corporation can have one or two directors.
There is not a minimum age or required state residency for directors in the state of California.
Step 3: Choose an California Registered Agent
Now, it’s time to appoint your California agent for service of process, also known as a registered agent, for your corporation. A registered agent is the person or business entity responsible for receiving important legal and government paperwork for your California corporation. If paperwork is due or there is legal action taken against the company, this person is the point of contact. They are also listed as the public physical address holder for the corporation.
Your registered agent can be a resident of California or a business authorized to do business in California. The registered agent should have a physical street address in the state (P.O. boxes are not sufficient). They must always be available during normal business hours. The registered agent can be a director or shareholder of the corporation, but the corporation itself can’t be its own registered agent.
Many businesses opt for a registered agent service to free up the responsibilities from their own workload. When using a registered agent service, you can meet the state’s requirement for receiving legal notices without having to constantly be in your office during regular business hours. You can also help protect yourself and your business’s privacy by using an outside registered agent, who will list their own address rather than your physical location. (This is all public record.)
Step 4: File the California Articles of Incorporation
Next, it’s time to file your Articles of Incorporation with the state of California. Your Articles of Incorporation outline the business, its name, and involved parties. More specifically, your Articles of Incorporation should include the:
- Corporation name
- Registered agent name and address
- Corporation address
- Number of shares of stock
- Name and signature of every incorporator
Fill out the form online, by mail, or in person. Nonprofits can file for $30, while S and C corporations will pay $100. An additional $15 is due when filing in person.
For those who choose to mail the articles, send them to:
California Secretary of State
Business Entities Filings Unit
P.O. Box 944260
Sacramento, CA 94244-2260
You may also deliver your Articles of Incorporation in person to the Sacramento office, 1500 11th Street, 3rd Floor, Sacramento, California, 95814.
For more tips about getting your California corporation paperwork approved the first time, check out these helpful tips.
Step 5: Create Corporate Bylaws
Now, it’s time to create the bylaws — or rules to live and work by — for your California corporation. Corporate bylaws are a list of regulations to be put into place with your business. California does not require corporations to have bylaws. That is not true for every state, but regardless, keeping them on hand is a good rule of thumb. California suggests that corporate bylaws should be on-site at all times with the most recent changes.
It’s important to create this documentation to protect your California corporation. It’s a step that gives guidance in the event of a disagreement — all parties can refer to the bylaws for a clear, indisputable answer. Bylaws protect all involved, including the company itself.
Bylaws can cover a number of sections, including:
- The company’s name and general goals
- Owners’ names, office/company role, and contact information
- Board of directors’ names, roles, and contact information
- Guidance regarding meetings: How often? What should be addressed?
- Any conflicts of interest grounds for removal from ownership or directorship
- Any and all bylaws that should be followed by the company and all involved
Once complete, you can distribute the bylaws to all shareholders. Be sure to provide updated copies if or when the bylaws are updated for the company.
Step 6: Draft a Shareholder Agreement
A shareholder agreement is a document that outlines what’s expected of shareholders. You’ll want your investors, also known as stockholders, to be well informed of what you’re asking of them. This will include their involvement in the company, monetary requirements, and any actions for the future, like when they should expect shareholder meetings. Additional information may be how they can sell their portion(s) of the company, if they are allotted voting rights, and other guidelines you might have in play.
Much of these guidelines will be determined based on the structure of your company. C corporations can offer preferred stock, which means that stockholders do not necessarily get votes. On the other hand, S corporations provide common stock, which means all shareholders get equal votes in company decisions.
All of this, along with information specific to your brand, can be provided in your shareholder agreement.
Step 7: Issue Shares of Stock
As a corporation, your business will have different forms of ownership. While you can have a single-owner corporation, most have two or more owners who can own, buy, and sell stock within the company. As brands grow, more investors can be brought in to increase capital or gain expert business knowledge from their shareholders.
Shares of stock are a requirement for corporations, even if they are all owned by a single party. If shares are sold, the business is required to keep track of these deals. Companies must provide a report to their shareholders each year, which is due 120 days after the closing of the fiscal year. This provides data to shareholders (and the state of California), including financial information. This also provides transparency for interested buyers and investors who have put their funds into the company.
Private companies are usually owned by their founding owners and do not offer stock for public sale. In contrast, public companies are usually owned by many investors, and their shares of stock are purchased or sold on the public stock exchange.
Public companies must provide financial information that helps potential buyers make an informed decision. These laws are put in place by the U.S. Securities and Exchange Commission (SEC).
Meanwhile, in the state of California, public companies must file annually with a Corporate Disclosure Statement. File online, by mail, or deliver in-person; there is no charge for providing the form.
For those who choose to file by mail, send it to:
Secretary of State
Statement of Information Unit
P.O. Box 944230
Sacramento, CA 94244-2300
To deliver the statement in person, please visit the Sacramento office, 1500 11th Street, Sacramento, California, 95814.
Step 8: Apply for Necessary Business Permits or Licenses
California businesses must hold a general business license to operate. These are issued at the local level rather than state, so you’ll need to check with your county or city government.
Additional licenses will vary based on industry and county, and you can find more information on the CalGold website. For instance, selling liquor requires special certification, while hairstylists have to remain certified and in good standing and display said standing for their customers.
You can learn more about their requirements on the Secretary of State’s website.
It’s important to note that there are licenses and permits on the federal, state, and local level, so you’ll have to do some research to determine what licensing your company needs or hire a service to do it for you.
Step 9: File for an EIN and Review Tax Requirements
An Employer Identification Number (EIN) is a unique identifier that your California corporation may need to register with the state. An EIN is provided by the IRS and is required for tax purposes. It allows a company to file taxes, open bank accounts, and pay employees. Your EIN is free to obtain, and you can do so on the IRS website or by faxing or mailing your form.
Online applicants can start using their EIN within a few minutes of filling out the form.
Filing by fax takes approximately four business days. Applications can be printed, filled out, and faxed to (855) 641-6935.
Mailed applications take approximately four weeks to process. Applications can be mailed to:
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Every corporation incorporated, registered, or doing business in California must pay, at a minimum, an $800 franchise tax. Note that there are exceptions to this rule, and you can find more information via the State of California’s Franchise Tax Board (FTB) website.
Step 10: Submit Your Corporation’s First Report
Once your California corporation has been filed with the state, it’s time to file your first report. Commonly referred to as an annual report in other states, it is called the Statement of Information (Form SI-550) in California, and it is required within the first 90 days of filing the Articles of Incorporation. After that, it is required every year during a specific six-month filing period based on the original registration date (you can find a helpful chart here).
Secretary of State
Statement of Information Unit
P.O. Box 944230
Sacramento, CA 94244-2300
You may also deliver the statement in person to the Sacramento office, 1500 11th Street, Sacramento, California, 95814.
Your Statement of Information will include the company’s information and address and all registered parties who can do business on the corporation’s behalf. Adding pages to your file costs $1 per page, and certified copies are available for $5 each.
How much does it cost to start a corporation in California?
Starting your corporation in California can range in price. Nonprofits can start with a $50 fee ($30 filing fee for their Articles of Incorporation and $20 for the Statement of Information). S and C corporations pay $120+ ($100 for the Articles of Incorporation, plus $15 for filing by mail, and $20 for the Statement of Information). There is also the $800 minimum franchise tax.
If you need to open your California corporation quickly, this can be done for a fee. Filing for expedited paperwork can cost up to $1,000 per form for same-day approval and filing. Same-day paperwork needs to be received by 9:30 a.m. to meet this requirement.
Skip the hassle and look to ZenBusiness to help with your filing needs. We can connect you with individuals who are well-versed with corporate California law and ease you through this process.
What are the benefits of a corporation in California?
Starting a California corporation can come with several benefits:
- Protects your personal assets
- Establishes your company as an official business
- Allows your brand to be recognized in and outside of the U.S.
- Creates stock that can be issued to investors
Potential disadvantages of starting a California corporation include:
- Double taxation
- Having to please investors
- Potential red tape associated with internal or state/federal guidelines
How is a California corporation taxed?
In California, C corporations are subject to a tax rate of 8.85% of their earned income, while S corporations pay a percentage of income at 1.5%, both with a minimum of $800 due. There is an exception for businesses in their first year of filing. Certain industries may also be subject to a different rate.
Nonprofits do not pay income taxes, but their employees pay an income tax on their salary and/or hourly wages.
Corporations are also subject to payroll taxes. Many states offer loopholes; however, California does not offer these same breaks, meaning corporations pay both state and federal taxes.
California Corporation FAQs
- Does running a corporation in California involve more paperwork than running other types of businesses?
Corporations are known for requiring a lot more paperwork and record-keeping. This is not surprising, considering they tend to have more laws to comply with and more people involved. When you look at corporate bylaws, shareholder agreements, keeping track of all stock issuances, meeting notes, etc., the paperwork required for your California corporation can add up quickly.
- What is the difference between an LLC and a corporation in California?
In California, limited liability companies (LLCs) are usually taxed differently than corporations. Corporations also have stock and shareholder options, while LLCs are owned outright by one or more parties. Public corporations can also be publicly traded, while LLCs cannot.
- How do I change my corporation’s name in California?
You can change your California corporation’s name by filing a Certificate of Amendment. Be sure to revisit step one to ensure your new name is available.
- How many people are needed to form a corporation in California?
Only one. California law requires three directors for your California corporation, but if there are less than three shareholders, it’s considered an exception. There must be an equal number of shareholders and directors. A single-shareholder corporation can have one or two directors.
- Can I form my California corporation online?
Yes, you can form your California corporation online using the Secretary of State’s website.
- How do I dissolve my California corporation?
You can dissolve your California corporation by filing a Certificate of Dissolution with the state. To stop owing annual fees, this is a necessary step. California does not accept forfeitures like other states. Until the dissolve paperwork is filed, your annual fees are still due. You will need to ensure all annual taxes have been filed and submit the paperwork within 12 months of your final tax return.