How to start a California corporation

It might seem like a lot at first, but once you understand the steps, it’s very doable. This guide will walk you through everything you need to know to start your California corporation.

How to start a corporation in California

Incorporating means registering your business as a corporation so the law sees it as its own entity, separate from you. Each state has its own rules for how to do this, so the process can seem confusing. Let’s go through each step: 

1. Choose a name for your California corporation

Your corporation’s name should be unique and make a statement about your business. Make sure it complies with the following California requirements:

• Your name should end with "Company," "Corporation," "Corp.," "Incorporated," "Limited," or an abbreviation of one of these terms.
• Your name cannot be deceptive. If you are selling surfboards, you cannot name your company "Sal's Garden Produce."
• Ensure that your name is distinguishable from that of any other existing registered business name in California.

Need help coming up with a business name for your corporation? Try the Rocket Copilot™ AI Business Name Generator, a free tool to help you brainstorm business names and get started registering your corporation.

2. Decide between a California S-Corp and 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, however, 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.

3. Appoint directors and shareholders for your California corporation

Each state has its own personnel requirements for incorporating. In California, 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. There are no age requirements for directors and 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. 

4. Choose a Registered Agent

A Registered Agent is the person or business responsible for receiving tax, legal, and government documents during regular business hours. It's important that every business has one. You can either serve as your own registered agent (if you have a California address) or choose one to do that service for you (if you are not located in California or would like an extra layer of privacy).

5. File your Articles of Incorporation with the state of California

Once you have a business name and registered agent, you can register your business as a California corporation with the state by filing your Articles of Incorporation. This document may be referred to informally as a corporation's "Articles," or in other states, it may be called a "Certificate of Organization," "Certificate of Filing," or "Certificate of Formation.

California also requires that you file additional paperwork with your Articles of Incorporation, including an initial Statement of Information with the California Secretary of State. This is due a few days after filing your Articles, then again each year during the corporation's anniversary month. Failure to file could jeopardize your corporate status.

6. Get an Employer Identification Number (EIN)

Before opening your doors for business, apply to the IRS for an employer identification number, or EIN. All corporations with employees in California 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.

Congratulations! After you have completed all these steps, you have formed your California corporation.

What to do after incorporating in California

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.

We have more detailed information about California's requirements for Bylaws and Corporate Meeting Minutes.

Still have questions? Learn more about how to start your own business with Rocket Lawyer and get started today!
 

Key takeaways Starting a corporation in California means following state rules, like choosing a unique name, filling out paperwork, and paying fees to make it official. One important choice is deciding how your corporation will be taxed in California, either as an S-Corp or a C-Corp. This affects how the business and owners pay taxes, and the differences between the two change from state to state. After forming the corporation, you have to keep records like bylaws and meeting notes to stay in good standing with the state and prove your business is real and operating correctly.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is a corporation?
• What is an S-corporation?
• How are corporations taxed?
• How to start a corporation
• How to register a corporation by state