This section provides an overview to incorporate in California as well as post-formation operations. While the procedure in California is similar to incorporating in other jurisdictions, it is not by any means identical.
Incorporation in California takes approximately one to two weeks if done by priority, special handling processing. By using “snail mail”, it takes about one month. The Secretary of State also has different service levels allowing an incorporator to have their filing reviewed in 2 hours, 4 hours or 24 hours. We offer a same day rush filings option and Secretary of State 24 hour processing, or you can save by having us file the Articles over-the-counter and paying the State’s “special handling” fee.
Selecting a Name for a California Corporation
When you file Articles of Incorporation, you will be selecting a name for your Corporation. If it is not already in use, it can be reserved at the California Secretary of State up to 60 days.
Our recommended California Incorporation service includes checking the name for availability with staff at the Sacramento Secretary of State office, and also reserving the name BEFORE filing Articles of Incorporation.
That way, the corporate name is protected from being used by other corporations in California. To protect it from use by non-corporate entities, it can be registered as a trademark or service mark.
California Articles of Incorporation
Articles of Incorporation are filed with the California Secretary of State to start the incorporation process. This is the beginning of forming a corporation, but it doesn’t provide structure to the entity. When you form a corporation in California you have to adopt bylaws, appoint directors, execute an Organizational Action, elect officers, issue shares and undertake more steps discussed below. There is a huge difference between “filing Articles of Incorporation” and “forming a California Corporation“.
Bylaws commonly include provisions of law, rules regarding voting and calling meetings as well as structural and operational issues. The corporate bylaws should stipulate the number of persons sitting on the Board and designate the responsibilities of officers.
Organizational Meeting of the Board
To complete the act of incorporating, a Meeting of the Board of Directors is normally called to elect officers, authorize issuance of stock, adopt bylaws and designate the principal executive office location. Minutes of this meeting should be prepared and signed by the Secretary to authenticate the actions of the Board.
In some circumstances, a simple “Incorporator’s Action” can be used in lieu of holding the Board meeting. The formality of holding a Board meeting can also be avoided by having all directors execute a “Consent to Action Without Meeting” to document resolutions.
If no directors have yet been appointed, and none were listed in the Articles, California law allows the incorporator (the individual who executed and submitted the application) to execute an Action of Incorporator to “do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers”.
Ongoing Affairs to Sustain Limited Liability Protection
After the articles are approved and organizational affairs are complete, the company has been formally incorporated. But the California Corp. Code, courts, and Internal Revenue Service require observance of ongoing formalities to sustain limited liability protection.
Federal Employer Identification Number
A Federal Tax Identification Number for the company (also called an “EIN” or “Employer ID No.”) should be obtained at the IRS for taxation purposes and for opening a bank account. Since they are taxpayers, corporations file returns and keep evidence they are operating as an entity separate from the owners. IRS form SS-4 is used to obtain an EIN.
Issuance of Stock
If stock is issued in exchange for asset contributions, a list of these assets should be kept in the corporate records to document the transaction. Before shares are issued, a permit must be obtained through the California Department of Corporations. However, if there are less than 35 shareholders, then it is possible to issue stock by registering with the Department under Corp. Code Section 25102(f). This is a simplified and common method to issue shares. The company is also required to file an annual Domestic Stock Statement which contains information regarding the company’s principal executive office, its officers, directors, and registered agent (also known resident agent)
Fictitious Name Statement
If a Corporation uses an alternative name (a Trade Name or “DBA”), a Fictitious Business Name statement has to be registered with the County Clerk in the county of the company’s principal place of business. This should be completed within forty days of commencing business. Within thirty days after submitting the Statement, the registrant must publish it in a newspaper of general circulation once per week for four consecutive weeks. An affidavit of publication will need to be submitted to the County Clerk’s office as proof.
Business Licensing for Corporations
Most cities and counties have licensing ordinances applying to businesses. If corporations operate inside city boundaries, the municipal government may require a permit. Check the links to each county website for contact information.
The agency responsible for corporate and personal income tax is the Franchise Tax Board. This Board will send a Guide to Corporations Commencing Business in California (pub. FTB 1060) to new companies if requested.
If a corporation sells products in California, it needs a seller’s permit from the Board of Equalization. Also, the corporation will pay sales tax on products it sells.
Subchapter S Corporation
“Subchapter S Corporation” status is acquired by filing IRS form 2553. This form should be filed within 75 days of the filing of the Articles. All shareholders must sign the form before the Subchapter S status can be accepted by the IRS. The S Corp. acceptance by the IRS should be maintained in the records book.
In California, there is no requirement for a resident director to incorporate. Foreign nationals can act as directors of California companies. However, California corporations are required to have a resident agent in California for service of process.
This outline is a basic overview on California incorporation. While this should help clarify the process to form a California Corporation, it is not intended as a complete guide. Numerous problems can arise if you fail to correctly incorporate and maintain the structure, such as unanticipated personal liability or shareholder disputes. If a corporation is not properly set up, the legal structure may not extend personal liability protection, and shareholders may be personally liable for the company’s obligations.
For more information beyond this summarized overview, and direct links to information about incorporating in California, please refer to the California Resources at this California Resource page.