How to start a Corporation in California

Steps To Form A California Professional Corporation

1. Pick A Name For Your Corporation

To ensure your corporation’s name is unique and not misleading, it should not be the same as, or too similar to, an existing name on the California Secretary of State’s records. While it is not mandatory, you may choose to include the words “Corporation,” “Incorporated,” or “Limited” (or their abbreviations) in the name.

To check the availability of a name, you can perform a free preliminary search using the Business Search database. Alternatively, you can send a completed Name Availability Inquiry Letter by mail to the California Secretary of State’s office in Sacramento. Please note that email or online inquiries are not accepted.

2. File Articles Of Incorporation

To legally establish your corporation, you need to file the Articles of Incorporation-General Stock (Form ARTS-GS) with the California Secretary of State. These articles must include vital information such as the corporate name, the physical address (and separate mailing address, if applicable), the name and address of the agent for service of process, and the authorized number of shares. Additionally, the articles available on the Secretary of State’s website encompass a comprehensive purpose statement. Don’t forget to include the Mail Submission Cover Sheet when submitting your articles. Please note that filings can only be made by postal mail or in person, and a filing fee of $100 applies.

3. Establish A Registered Agent

Every California corporation is required to have an agent for service of process within the state. This agent, whether an individual or corporation, is responsible for accepting legal documents on behalf of the corporation in the event of a lawsuit. It is important to note that a corporation cannot serve as its own agent for service of process. Prior to designation, it is crucial that the chosen agent agrees to accept the service of process on behalf of the corporation.

The agent can either be an individual residing in California or a corporate agent who has filed a Registered Corporate Agent for Service of Process Certificate (Form 1505) with the Secretary of State. It is important to provide a physical street address in California, as a post office box is not acceptable. For small corporations, it is common to appoint a director or officer as the initial agent, with the option to designate a different agent later.

4. Compose Corporate Bylaws

Bylaws are an internal document that outlines the fundamental guidelines for operating your corporation. Unlike other corporate documents, they are not required to be filed with the state. Although not legally mandatory, it is highly recommended to adopt corporate bylaws for two reasons: they establish the operational rules of your corporation and they serve as evidence of legitimacy to banks, creditors, the IRS, and other stakeholders.

Additionally, it is advisable to create a corporate records book to store all significant documents, including minutes of director and shareholder meetings. This can be accomplished by using a three-ring binder or by purchasing a specialized corporate records kit from a supplier. Ensure that the corporate records book is kept at the principal office of your corporation.

5. Appoint Directors And Hold The First Board Meeting

The incorporator, the person who signed the articles, is responsible for appointing the initial corporate directors. These directors will serve on the board until the first annual meeting of shareholders, where new board members will be elected. To fulfill this duty, the incorporator must complete an “Incorporator’s Statement” that includes the names and addresses of the initial directors. This statement should be signed by the incorporator and kept in the corporate records book. It is not necessary to file the statement with the state.

The first board meeting of the corporation should be held to accomplish several important tasks. These include appointing corporate officers, adopting bylaws, selecting a corporate bank, authorizing the issuance of shares of stock, determining the corporation’s fiscal year, and adopting an official stock certificate form and corporate seal. The actions taken by the directors during this meeting must be documented in corporate minutes, which can be prepared by the incorporator or any of the directors. If the corporation plans to be an S corporation, the directors should also approve the election of S corporation status.

6. Issue Stock

To raise capital, shareholders can receive stock in exchange for their contributions, whether it be cash, property, services, or a combination of these. While not legally mandatory in most states, small corporations often issue physical stock certificates. It is important to record the names and contact information of each shareholder in the corporation’s stock transfer ledger. In California, corporations are not required to assign a par value to their stock, which is the minimum price at which shares can be sold. The board determines the value and quantity of the initial shares.

It is crucial to understand that a share of stock in your corporation is considered a security under state and federal securities laws, which regulate the offer and sale of corporate stock. However, federal law provides an exemption for “private offerings,” which are non-advertised sales to a limited number of individuals (generally 35 or fewer). Therefore, if you are issuing shares to 35 or fewer people, you are not subject to federal securities laws.

California has its own version of this federal exemption. To qualify for a limited offering exemption under state law in California, you must submit a Section 25102(f) Notice Filing – Limited Offering Exemption Notice (LOEN) to the California Department of Business Oversight. You can complete and submit the notice online at [this link](https://docqnet.dbo.ca.gov/). Please note that there is a filing fee ranging from $25 to $300. It is important to file the notice within 15 days after your corporation issues stock.

7. File A Statement Of Information

All California corporations, as well as foreign corporations registered in California, are required to submit a Statement of Information to the Secretary of State.

• Within 90 days after filing the Articles of Incorporation
• Each subsequent year within the relevant filing period

California corporations, whether domestic or foreign, are required to submit Form SI-550. This form can be conveniently filled out and submitted electronically using the online platform, or if preferred, it can be printed from your computer and sent by mail or dropped off in person. The filing fee for this process amounts to $25.

8. Follow All Tax Requirements

Every California corporation, as well as foreign corporations that conduct business in California, are required to fulfill their tax obligations to the California Franchise Tax Board (FTB).

• Annual minimum tax: During the first quarter of each accounting period, a mandatory annual minimum tax of $800 must be paid by corporations, regardless of their activity, profitability, or business operations. For newly qualified or incorporated corporations registered with the Secretary of State, the tax calculation is based on their income for the first year and is subject to estimated payment requirements. For all subsequent years, the minimum tax remains fixed at $800.
• Additional taxes: Corporations that exceed specific income thresholds are required to pay an additional fee proportionate to their total annual income.
• Filing procedures: Regular corporations are required to submit California Form 100, known as the “Corporation Franchise or Income Tax Return,” by the 15th day of the third month following the conclusion of their taxable year. Conversely, corporations that have chosen to be taxed as S corporations must file Form 100S, titled the “California S Corporation Franchise or Income Tax Return.”
• EIN: To establish your corporation, you will need to obtain a federal Employer Identification Number (EIN). This unique identifier can be obtained by completing an online application on the official IRS website. The good news is that there is no filing fee involved. Simply follow the provided link to access the application and begin the process.
• California Employment Development Department: A California corporation is required to comply with the state’s payroll tax regulations if it pays wages exceeding $100 in any calendar quarter. This requirement remains applicable even if the corporation operates without any employees, except for the corporate president. The California Employment Development Department (EDD) issues employer account numbers, also known as state employer identification numbers (SEINs), and oversees various payroll taxes in California. These include Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding. For more information, please visit the official EDD website.