8 Steps on How to Form a Corporation in California

Brad Nakase, Incorporation Attorney

Nothing beats the sweet taste of new beginnings and the exhilarating feeling of leaving behind your comfort zone to embark on an adventure. After all, life is about taking chances and charging into uncharted territory. Forming a corporation is a daunting endeavor for many entrepreneurs, full of uncertainty and hesitation. This is especially true in California, where complex corporate law forms a corporation. This article highlights the steps on how a corporate attorney lawyer forms a corporation.

Disclaimer: The information on this page is for educational purposes. There are many nuances to corporate formation and compliance. Please retain a incorporation attorney to form a corporation.

  1. Choosing a Name for a Corporation

The first step in forming a corporation is giving it a name. Think of a unique name so that your corporation stands out. As long as you’re not stealing another corporation’s name or choosing a misleading name, you’re in the clear. You might also choose to include words like ” Incorporated,” ” Limited,” or “Corporation” but you are not required to do so. How will you know what names are already taken? Check to see if your chosen name already exists on the California Secretary of State’s records. You can do this for free in the Secretary of State’s Business Search database or by mailing a Name Availability Inquiry Letter to their Sacramento office. Keep in mind they don’t accept inquiries by email or online, only by postal.

  1. Filing Articles of Incorporation

The second step in forming a business is filing the Article of Incorporation in incorporation. A corporation is officially born when it is incorporated. For a $100 filing fee, you can submit an Articles of Incorporation form (ARTS-GS) to the California Secretary of State, to legally bring your corporation into existence. On your ARTS-GS form make sure to include:

  1. The corporation’s name
  2. The corporation’s street address and their mailing address (if they are different)
  3. The name and street address of the corporation’s agent for service of process (it cannot be a p.o. box address)
  4. The number amount of shares that the corporation has authorization to issue
  5. A purpose statement for the corporation.

Include a Mail Submission Cover Sheet and either file your articles in person or send them in with postal mail.

  1. Appointing an Agent for Service of Process

The third step for forming a corporation is appointing an Agent for Service of Process. California requires every corporation to designate an agent for service of process. This agent must be present in California. God forbid you’re sued; this person or entity would  be the one to accept legal documents on behalf of the corporation. When it comes to choosing an agent, you have two options. You can either choose an individual California resident or an agent for the corporation that has filed with the Secretary of State a Registered Corporate Agent for Service of Process Certificate, which is form 1505. It doesn’t matter which option you choose as long as the agent has a physical address in the state of California. You can’t be your own agent, but oftentimes it is possible to name a director or officer to serve as agent until you can find an alternative. Your choice of agent isn’t set in stone, so you can always designate someone else as an agent in the future. If you are having trouble with this step, be sure to check out California’s Secretary of State’s  private service companies list. These are companies that provide registered agent services.

  1. Preparing the Corporation Bylaws

The fourth step in incorporating a business is drafting the corporate bylaws. You can’t have a corporation without copious amounts of paperwork and documents; the two go hand in hand. Bylaws are the first of many corporate documents to come. Bylaws outline the basic rules for the corporation’s operation. Surprisingly, these are not required by law. However, they are instrumental.

Bylaws lay out your corporation’s regulations and serve as proof of your corporation’s legitimacy. Staying organized is crucial, especially during the first few years in the life of a young corporation. Consider keeping neat and detailed records. You can do this by compiling essential documents, meeting minutes, and other necessary paperwork into a designated binder or folder. Its best to keep this at your corporation’s head office rather than at home where it can get lost or damaged by children and pets.

Warning: Unless you have legal training, do not try to write a corporate bylaws. Hire a corporate attorney to write the corporate bylaws.

  1. Appointing Directors & Holding the First Board Meeting

By signing the articles of incorporation, you have taken on a new title, that of incorporator. As incorporator, it is your responsibility to appoint the initial corporation’s directors. This group of individuals will form your board and will continue to serve until your shareholders meet and vote to elect the next group of directors. After selecting the individuals of your choice, you must fill out and sign the “Incorporator’s Statement”. This document is a compilation of all the initial directors’ names and their addresses. Make sure to keep a copy of this document in your records.

The first board of directors meeting is paramount because it will help lay a sturdy foundation for your corporation. There is a long to-do list for the first meeting. By the end of the initial meeting, you should have:

  1. Appointed corporate officers
  2. Adopted bylaws
  3. Selected the corporation’s bank
  4. Authorized issuance of shares/stock
  5. Set the corporation’s fiscal year
  6. Instituted the corporation’s official stock certificate form and a corporate seal

While all of this is going on, make sure you or a director are taking corporate minutes. There should be an accurate record of the actions taken and the decisions made.

  1. Issuing Stock

Cash flow is the lifeblood of any company and shareholders are the ones who contribute cash and/or property and services to your corporation. In return for these resources, shareholders are issued stock. Under state and federal securities law, stock is considered a security. However, if issuing shares to 35 persons or less, you are covered under a federal exemption and need not concern yourself with federal securities law. However, you will need to claim an exemption under California state law. You can do this by filing with California’s Department of Business Oversight a 25102(f) Notice of Filing, a Limited Offering Exemption Notice, aka LOEN. This should be done online within fifteen days after the issuance of stocks by the corporation. There is a filing fee which ranges from $25 to $300.

  1. Filing a Statement of Information

California requires that every corporation that is registered in the state must have on file a Statement of Information with the Secretary of State, which is form SI-550. This should be done within 90 days after the corporation’s filing of their Articles of Incorporation, and each year after that during the filing period, which is anytime between the month in which the Articles were filed and the five months before that. It costs $25 to file a Statement of Information and you can either file it online or print a hard copy and mail it.

  1. Tax Requirement Compliance

California is known for its back breaking taxes. California corporations in business must pay taxes to the California Franchise Tax Board (FTB). Here is a breakdown of everything you need to know about taxes.

Annual Minimum Tax
Regardless of whether or not your corporation is active, there is a $800 tax that must be paid annually in the first quarter of each accounting period. Newly incorporated companies pay tax on the basis of their first-year income.

If your corporation is generating income that is over a certain amount, you’ll have to pay an additional fee. This fee is calculated using your total income annually.

Procedures for Filing
In terms of filing, your corporation must file a California’s Form 100, which is the Corporation Franchise or Income Tax Return form. It must be paid the 15th day of the third month after the taxable year’s close. For S Corporations being taxed (S corporations pass business income, losses, deductions, and credits to shareholders), they will have to file a different form. They must file California’s form 100S, which is the California S Corporation Franchise or Income Tax Return.

Corporations have to obtain what is called an EIN, a federal employer identification number, which is obtained by filling out a free application, found on the IRS’s website.

California’s Employment Development Department
Payroll taxes are another expense you’ll have to keep in mind. Your corporation will could be ruled by California’s payroll tax if you pay more than $100 in wages during a calendar quarter. The rule can apply even if you don’t have any employees and are only paying yourself as the corporation’s president. The California Employment Development Department provides the employer with account numbers (SEINs). They also administer the state’s payroll taxes, which includes insurance for unemployment and state disability, the employment training tax, and California’s personal income tax withholding.

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