A Guide to California Corporations
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Looking for information on how to incorporate in California? You’ve come to the right place. The California corporation has long been considered the gold standard for business entities in the Golden State. Why? Prestige, for one. But when you incorporate in California, the benefits go beyond the esteem that comes with a corporate boardroom. There’s also the asset protection, easy access to capital, possible tax savings, and a lighter regulatory burden that comes with forming a California corporation.
For $150 plus California state filing fees, we’ll form your California corporation for you. You’ll also get a year of California registered agent service and a California business address.
Advantages of Incorporating in California
The California corporation enjoys a great deal of prestige. Some people find corporate formalities irritating or pointless, but the structure and ceremony of a corporation bring a built-in reverence for shareholders, corporate boards, and CEOs. It’s no mistake that so many of the successful businesses headquartered in California (think Disney, Apple, and Facebook) are corporations.
Compared to a California LLC, corporations in California can accommodate a wider range of business activity. California imposes restrictions on the types of business an LLC can conduct. If your line of work requires a state license, certification, or registration, it’s likely that you aren’t allowed to form a California LLC. For example, attorneys, architects, barbers, dentists, doctors, nurses, pest control workers, psychologists, veterinarians, contractors, cosmetologists, and many other professions are barred from organizing as an LLC in California. If you fall into a regulated industry like the ones listed above, your best alternative is to form a California corporation.
Access to Capital
When it comes to raising the capital that will get your dream off the ground, the California corporation is easily the most dependable business entity. That’s because the corporation has a built-in mechanism for raising capital: selling stock. Shares of stock can be authorized and sold at any time. Then there’s the fact that investors tend to be far more familiar and comfortable with the idea of investing in corporations. Why is that? The formalities and structure that are inherent in a California corporation (and missing from a California LLC) inspire confidence in investors. It’s reassuring to know that you’re investing in a business that must keep strict records and answer to a board of directors.
At first, it might seem like forming a California LLC is a less expensive option than incorporating in California. After all, corporations are famously subject to double-taxation – first, corporate profits are taxed at the corporate tax rate, and then those same profits are taxed again when distributed to shareholders as dividends.
However, that doesn’t necessarily mean the tax burden on a California LLC is smaller. A California corporation will pay 8.84% on net revenues and shareholders will pay an additional capital gains tax on any dividends they receive that range between 0% and 20%. But LLC members must pay the full self-employment tax (15.3%) on their earnings plus the state income tax. Plus, LLC members are taxed on any income the business generates, even if that money is reinvested into the business. Corporations do not have to pay taxes on money left in the business account.
Both California corporations and LLCs are subject to the California Franchise Tax – an annual $800 fee. Depending on your situation, you may benefit from using the corporate tax structure.
Stability and Your Business Address
Building a reputation for stability is key for every corporation, and having a permanent business address can help. You’ll be required to list a physical business address (no PO boxes) on your Articles of Incorporation — a fact that creates a problem for web-based workers or businesses run out of a home. If you list your home address, you’ll have to update the Secretary of State every time you move, and all of these changes will be recorded and posted on your record. That can be a red flag for many potential clients and investors.
When you hire us to incorporate your business, you get a California business address at no extra charge. This keeps your home address off the public record (sparing you tons of junk mail) and saves you the trouble of updating the California Secretary of State every time you move.
How to Incorporate in California
- Choose a California Registered Agent
- File California Articles of Incorporation
- File your Statement of Information
Every California corporation must designate a registered agent to accept legal mail (summons, subpoenas, etc) on behalf of the business. A California registered agent must have a physical, street address and be available to accept mail during business hours.
You can be your own registered agent in California, but you’ll have to list your address on the Articles of Incorporation, and that means your address will be posted on the Secretary of State’s website for anyone to see (including aggressive marketers – get ready for some junk mail). Hiring a commercial registered agent, like California Registered Agent ($50/year) solves that problem.
To officially incorporate in California, you’ll need to complete and submit Articles of Incorporation with the CA Secretary of State. Check out our step-by-step guide to filing out Articles of Incorporation in California for more information.
Once you complete the Articles of Incorporation, you have to submit them to the CA Secretary of State. You can submit the paperwork online, send your documents by mail, or hand-deliver them at the Sacramento office.
Don’t forget the California filing fee. To incorporate in California, you’ll have to pay $125 for the filing of your Articles of Incorporation and the Initial Statement of Information. We only charge $150 to form your corporation for you, and you get a year of California Registered Agent Service.
Within 90 days of incorporating in California, you must file your initial Statement of Information with the CA Secretary of State. When you hire us, we include this with your business formation package and get it done the same day you order.
Ongoing Maintenance for California Corporations
All California corporations are required to file a Statement of Information each year. Publicly-traded corporations (both domestic and foreign) must file a Corporate Disclosure Statement each year as well.
If you fail to file your Statement of Information, the first consequence is a $250 late penalty. If your delinquency continues, the CA Secretary of State has the power to administratively dissolve your corporation. Reinstating a corporation in California can be costly, so don’t let this happen to you.
Does my California Corporation Need Bylaws?
California does not legally require a corporation to adopt corporate bylaws, but few corporations operate without a governing document.
Having a governing document on hand is essential to running a successful business. Your corporate bylaws should outline who owns your company (your shareholders, their number of shares, and the rights that come with those shares) as well as the broader management structure of the company.
Well-written and thorough bylaws are not easy to create, but taking the time and getting them right from the beginning is a surefire way to save you a great deal of time and heartache later.
Every corporation will need to craft unique bylaws that address the specific needs of the particular company. However, all California corporate bylaws should address the following:
• Names and addresses of initial shareholders
• Classes of stock and the rights of each class
• What capital each shareholder offered in exchange for stock
• Appointment of board of directors
• Rights and responsibilities of directors
• Rules for buying/selling shares
• Rules for appointing new directors and officers
• Rules for conflicts of interest
• Dates and locations of annual meetings
• Shareholder meeting procedures
• Procedure for changing bylaws
• Voting requirements for California corporation dissolution
During incorporation, nobody is expecting things to go south. But having carefully drafted bylaws for your California corporation can help steer you through unexpected turbulence.
It’s important to note that a California close corporation must have a shareholder agreement, which is similar to bylaws but closer in nature to a partnership agreement.
Confused about how draft corporate bylaws? We include bylaws with our incorporation service for $150 plus California state filing fees, and you get a year of California Registered Agent Service, too.