How to start a Corporation in California?
27 August, 2021
Starting a corporation is a big decision in itself, but creating it in the right place is the next big decision you will have to take - one of the best places to begin your corporation is in California. When you are ready to form a corporation in California, you will need to know how and where to start from. A couple of things that you will have to do is search for are; the requirements for naming, forms to fill, tax registration, etc.
Starting a corporation has many advantages, a corporation protects all your personal assets from the business's obligations and debt, it protects the owner if an employee or partner is accused of misconduct, tax benefits, and flexibility. Starting a corporation requires you to do a list of things:
#1 File articles of incorporation
In the state of California, you are required to file the articles of incorporation with the Secretary of State to establish a corporation. In order for you to incorporate, a fee is to be paid after filing the articles. The following information is to be included in the articles of incorporation:
- Name of the corporation
- Purpose of the corporate
- The agent of process or service
- Every incorporator's signature
- Address of the corporation (street address, should not be the post office box)
- Total number of authorized shares in the corporation
When you are defining the corporation's share, there are specific requirements that your articles of incorporation should satisfy:
- If your corporation only has one share class, the total number of authorized shares in the corporation should be listed in the articles of incorporation.
- If your corporation has a class of shares that has two or more series or has more than one class of shares, it should be specified in the articles of incorporation.
#2 Corporation's Name
One other thing you will have to do before incorporating your business is to name the company. Suppose you already have a name in mind for the corporation. In that case, you will have to check the availability of the name by checking online using an entity name check service on the Secretary of state website. If you want to reserve the name of your business for up to 60 days, it can be done by using an online entity name reservation or by filing the Name Reservation Request form at the Secretary of State.
Additionally, there are some conditions that the corporation's name should meet:
- The name of the corporation should not be misleading.
- The name cannot be the same or closely similar to the name of any other existing corporation (unless the existing corporation gives written permission to use the word)
- If it is a general stock corporation, the name does not need to consist of words such as "Limited", "Corporation", or "Incorporation"(nor their abbreviations).
#3 Incorporators needs to be specified
The entities or people who applied to form a new corporation are required by California law to be specifically listed. According to the law in California, one or more natural persons, corporations, associations, or partnerships can form a corporation. The responsibility of filing the articles of incorporation is of the incorporators. If, in any case, the articles of incorporations do not have the names of the initial directors, the incorporator is responsible for taking necessary action to finish setting up the corporation.
The incorporator should approve bylaws and elect directors and officers. Once this is done, and the directors are chosen, the incorporator does not have any other responsibility. There are specific requirements to specify the incorporators:
- The articles of incorporation should list the name and signature of every single incorporator
- There is only a need for one incorporator
#4 Directors need to be specified
Since the directors have responsibilities such as setting and implementing the corporate policy, it is essential that the corporation specifies its directors. The Directors have a fiduciary duty towards the business and the shareholders. This means that the directors always have to act in the best interest of the corporation and its shareholders. It is essential to fulfilling the requirements for specifying the directors. Some of the requirements to determine directors are:
- In case the corporation in California has three or more shareholders, there must be a minimum of three directors.
- In case they have only one shareholder, then the corporation can have one or more directors.
- In case they have two shareholders, then they are required to have two or more directors. There is no maximum limit for the number of directors.
#5 Specify a Registered Agent
Also known as the statutory agent or the agent for service of process, a registered agent is a point of contact for the incorporation with the state and for service of process. While filing the articles of incorporation, make sure that it includes the name of the registered agent as it is required by law. The agent or corporation will act as the person who will receive all the legal documents or lawsuits that are served on the corporation. The incorporation's registered agent should be a company that is registered with the Secretary of State, a corporate agent, or a person who resides in California.
#6 Corporate's Purpose must be stated
A majority of the corporations utilize a generic language that leaves open every possibility within the bounds of the law. According to California law, you are required to use the following language to state the purpose of the corporation clearly. For example, The purpose of the corporation is to take part in a lawful activity for which you may organize a business for other than the trust company, banking industry, or the practice of the permitted profession under the General Corporation Law of California, to be incorporated by the California Corporations Code." It is essential that the corporation follows the requirements and clearly states the purpose as it will help push the business to achieve goals aligned with its purpose. A corporation with a vital purpose will be able to achieve success.
#6 Determining the Incorporation Bylaws
Bylaws are essential in a company as it helps describe how the corporation will operate. Additionally, Bylaws consist of rules that govern the operation of the business. This also includes the selection process of directors and officers, specified duties, and the process of calling and conducting a meeting. Bylaws also help to protect the rights of all the officers and directors.
#7 Incorporating costs in California
The Secretary of state in California requires a fee for both reserving the corporation name and while you are filing the articles. Additionally, the corporation is also required to pay the income taxes (state and federal). But there are certain exemptions that apply on tax.
Starting a business in California is beneficial to you as you will be exposed to a good environment where everything is accessible. You will be able to establish a good network for your company. Additionally, your personal assets will be protected from any lawsuits made on the corporation as you are not fully liable for the company. Therefore, feel free to establish your dream company in California.
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