State of California Incorporating
Laws and Procedures
As a business in the state of California with a need to incorporate,
it is important to understand California's laws and procedures
for incorporating and operating a corporation. The following sections
include details specific to the state of California incorporation laws, procures and processes.
Starting the Process
You can reserve your name with the California Secretary of State
for 60 days. Incorporating protects the name from being used by
another corporation in California. To protect the name from use
by non-corporate entities, it can be registered as a trademark only
after the incorporation process is complete.
Procedure to Become a California Corporation
To incorporate, Articles
of Incorporation must be filed with
the California Secretary of State. While filing Articles begins
the existence of the corporation,
it doesn't provide any structure to the entity. The corporation must
be completed with corporate
bylaws, the appointment of the Board
of Directors, the issuance of stock, and
other steps discussed below. You will not be incorporated until
you complete these steps.
Corporate Bylaws
Corporate
bylaws commonly include provisions of the law, rules
regarding voting and calling meetings as wells as other structural
and operational
issues. Corporate
bylaws should include the following information:
- The corporation's identifying information (name, address, and
principal place of business)
- Number of directors and corporate officers authorized for the
corporation.
- Number and type of shares and stock classes that the corporation
is authorized to issue.
- Procedure for director and shareholder meetings -- including
frequency, location, and protocol.
- Procedure for corporate record-keeping -- including rules for
preparation and inspection of records.
- Procedure for amending articles of incorporation and bylaws.
Bylaws are not filed with the Secretary of State office, but
are required to be created and kept by the corporation.
Meeting of Directors
To complete the process of incorporating, directors hold the
First Meeting of the Board of Directors to elect officers, authorize
issuance of stock and to adopt the Corporate
Bylaws. Minutes for
this meeting must be taken, usually by the corporate secretary,
to provide evidence of the actions authorized during the session.
If the Director's decide to forego a formal meeting, they
must execute a "Consent to Action Without Meeting" to document
the corporate resolutions.
Ongoing Operation Requirements
After the California articles
of incorporation, first meeting
of directors, and stock issuance are completed, the formation of
the corporation has been formally established. After this you will
need to complete formalities to adhere to the California Corporations Code, courts, and Internal Revenue Service requirements.
Federal Employer Identification Number
A Federal
Tax Identification Number for the company (also called
an "EIN" or "Employer ID Number") can be obtained from the IRS
for taxation purposes and for opening a corporate bank account
by filing IRS form SS-4.
Issuance of Stock
After the board of directors has authorized the initial stock,
the corporation proceeds to issue stock. The shareholders must
fund the corporation with the initial capital. Before stock is
issued, a permit must be obtained from the Department of Corporations.
However, if the shareholders of the corporation are limited to
less than 35 persons, then it is possible to issue stock by registering
with the Department of Corporations under Corporate Code Section
25102(f), which is a simplified and common method to issue stock.
Fictitious Name Statement
If the Corporation will conduct business under a fictitious name,
a Fictitious
Business Name statement must be filed with the County
Clerk in the county of the company's principal place of business.
The statement must be filed within 40 days of the commencement
of business, and within 30 days after filing a Fictitious
Business Name Statement, the registrant must publish the statement in a
newspaper of general circulation in the same county once a week
for four consecutive weeks. An affidavit of publication will need
to be filed with the County Clerk's office as proof.
Business Licensing for a Corporation
Many cities and counties require a license to do business within
the city.
Corporate Tax Laws
Since a Corporation is a taxpayer, it must file tax returns and
maintain evidence that it is operating as an entity separate from
its owners. The California agency responsible for administration
and enforcement of California corporate, business and personal
income taxes is the Franchise
Tax Board. Currently, California
requires that all corporations pay a minimum of $800 in tax. Corporations
in their 1st year of business are exempt from this tax.
Seller's Permit
If the corporation will be selling products in California, it
must obtain a seller's permit from the State Board of Equalization.
Also, the corporation must pay California sales tax for 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
of Incorporation. All the shareholders of the Corporation must sign the form for the S
corporation status to be accepted
by the IRS.
Registered Agent
In California, there is no requirement for resident director
to incorporate. Foreign nationals can act as a director of a California
company. However, a California company is required to have a resident
agent in California for acceptance of service of process.
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