State Processing Times and Fees
Nearly every state has standard processing times, but not all provide expedited processing for corporations. Check the average wait times for both standard and expedited filings because they vary from state to state.
California charges a filing fee for incorporating. Visit "compare pricing" in our incorporation center to see all state fees for California.
Deciding Between a California S Corp and a C Corp Tax Designation
There are similarities between a California S Corp and a C Corp regarding personal liability, management, structure and compliance. The differences in California come down to the following:
- Ownership Rules: A C Corp is taxed as a separate entity from the shareholders. Shareholders report and pay taxes on what the corporation pays them. An S Corp is taxed like a partnership with a "pass-through" structure. It's not doubly taxed because the corporate entity can pass corporate income, losses, deductions and credits to its shareholders for federal tax purposes. Corporate owners do pay taxes on their share of the corporation's profits, and they're taxed at their individual tax rate.
- Documents: If you want to form an S Corp, file IRS Form 2553 to elect this status within 45 days of incorporating. To qualify as an S Corp, your business must be a domestic corporation, provide only one class of shares, have no more than 100 shareholders, and your shareholders must be individuals, certain trusts or estates.
Each state has its own personnel requirements for incorporating. In California, you must follow these rules:
- Age requirement: There are no age requirements for directors.
- Number of directors: Your corporation must have at least three directors, unless shares have not yet been issued. In this case, the number can be one or two. If you have only one shareholder, you can have only one director. If your corporation has two shareholders, you can have two or three directors.
- Residency: There is no requirement that directors live in California.
State the number of your corporation's directors in either your bylaws or your business's Articles of Incorporation.
Other Requirements for Your Articles of Incorporation
Along with personnel requirements, you must include the following in your Articles of Incorporation in California.
You must appoint a registered agent. A registered agent is a person or business who receives important tax, government and legal documents for your corporation, including service of process of lawsuits. Your agent must be available during normal business hours. The name of your registered agent must be included in your Articles of Incorporation, and California requires that your agent have a physical address in the state. Your corporation can't act as its own agent. We can help you designate your registered agent when you incorporate with us.
You must also include the following in your Article of Incorporation in California:
- The number of shares authorized to be issued, and this can't be zero.
- If there is more than one class or series of authorized shares, identify them.
- The name and address of your corporate office.
Other Required Paperwork
California requires that you file additional paperwork with your Articles of Incorporation, including an initial statement of information with the California Department of State.This is due within 90 days of filing your Articles, then again each year during the corporation's anniversary month. Failure to file could jeopardize your corporate status.
Guidelines for Your Name
Your corporate name should be unique and make a statement about your business. Make sure it complies with the following California requirements:
- Your name should be distinguishable from any other registered business in California and end with "Company," "Corporation," "Corp.," "Incorporated," "Limited," or an abbreviation of one of these terms.
- Your name cannot be deceptive. If you are selling surf boards, you can't name your company "Sal's Garden Produce."
- Ensure that your name is distinguishable from that of any other existing corporate name.
California Corporate Taxes & Reports
Yes, your new corporation does have to pay taxes. Before opening your doors for business, apply to the IRS for an employer identification number, or EIN. All corporations with employees must have an EIN. An EIN is similar to your Social Security number, but it's for businesses. You'll also need an EIN to open your corporate bank account.
Many business owners choose S Corps because they're generally exempt from income tax and there is no double taxation. A C Corp offers more flexibility because you can have several classes of shareholders with different voting rights, but there are tax implications.
Keeping Corporate Records and Ongoing Filing Requirements
California requires that you create corporate records, such as bylaws and corporate minutes, to maintain your corporate status. Bylaws set forth your company's internal operating rules and procedures, define the responsibilities of your directors, explain the rights and powers of your shareholders, and address all other corporate matters. You don't have to file your bylaws with the state, but you'll have to provide them to banks, lending institutions, creditors, the IRS and the courts to prove that your corporation is valid and legitimate. Bylaws also help to establish rules so you can keep your corporate assets and debts separate from your personal ones.
Keeping minutes of your director and shareholder meetings is also required in California. These records should be maintained at your corporate office with your other company records. Corporate minutes keep track of all votes on your important business decisions and help secure your corporate status.
Best of luck with your new California corporation! We have all the legal documents, filing and tax information you'll need to get started.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.