San Diego corporate lawyers assist your company in incorporating new business entities. Incorporation carries many benefits, including protection from personal liability and tax flexibility. To reap the rewards of being incorporated, the proper process must be followed in accordance with California law. What many business owners fail to realize is if they do not meet all of the legal requirements of proper formation and maintenance of their business entity, they lose most, if not all, of the benefits of incorporating. Gehres Law Library is here to help.
Steps to Incorporating in California
To form a corporation in California:
- Determine if your desired company name is available. As the California Secretary of State explains, you may not use a name for your corporation that is too similar to the name of an existing company or that is misleading to the public.
- Determine whether to form a C-corporation or S-corporation for tax purposes. Both provide liability protection, but there are more restrictions on who can own S-corporations. Click here for more information on these ownership restrictions. Corporations are taxed differently depending upon whether they are treated as a C-corporation or S-corporation. S-corporations do not pay corporate tax, but must file an information return annually. Profits and losses are passed through to owners of an S-corporation. C-corporations create risks of double taxation since the company is taxed on profits and shareholders are taxed on profit distributions.
- Complete and file Articles of Incorporation. Articles of Incorporation are available from the website of the California Secretary of State . There are different forms for general stock corporations; closely held corporations; nonprofits and other specific types of corporations.
- Pay a filing fee: A $100 filing fee is required for most companies that wish to operate as a corporation in California.
- Comply with tax obligations: Corporations should obtain a federal employer identification number to properly comply with IRS rules and to be able to open bank accounts in the company’s name. California corporations are also mandated to pay $800 or more in taxes to the California Franchise Tax Board annually.
- Election of S-corporation Status: If you have chosen to form an S-corporation, your first step is form a C-Corporation and then elect S-corporation status with the Internal Revenue Service using Form 2553.
- Complete a Statement of Information. A statement of information is due 90 days from the date a corporation was registered. A statement of information is also due each year thereafter once a corporation has been created.
- Hold shareholder and director meetings: Among other things, shareholders must elect a board of directors and the directors must pass resolutions for the new company, including approval of Bylaws, which dictate how your company will operate. Bylaws should be created even if you are the only owner and only employee of the company. All corporations must maintain corporate formalities – which means taking steps to operate as a legitimate corporation – to benefit from tax flexibility, protection against personal liability for company obligations, and other advantages of incorporation.
- Obtain required business licenses. Depending upon the nature of the business that will be operated and where it is physically located, a newly formed business may be required to obtain a business license from the county as well as from the city where business will be conducted.
- Register with the California Employment Development Department (“EDD“): This step is necessary only if the corporation will have at least one employee.
- Obtain a Seller’s Permit to remit sales tax: The California State Board of Equalization regulates sales tax collection and remittance. If your corporation will be offering services and not products, it is generally not required to obtain a Seller’s Permit.
Getting Help from San Diego Corporate Lawyers
The knowledgeable and trusted San Diego corporate lawyers at Gehres Law Library provide representation and assistance with the incorporation process for individuals and entities in a wide variety of industries. Give us a call at 858-964-2314 or contact us online to find out more about how our legal team can work with you to select and form the business entity most advantageous to you.