Benefits of Incorporating in
California
Why Incorporate in California? Incorporating in California gives
your business many benefits.
The primary benefit of incorporating in California is to protect
your personal assets from potential liabilities that could occur
in your business. Without the protection provided by a corporation,
creditors or other claimants of your business can attach personal
assets including garnishment of personal salary, attachment of
personal bank accounts, attachment of your home in most states,
and seizure of other personal assets. If you are operating as a
sole proprietorship or as a partnership your personal assets are
vulnerable. By incorporating in California and following all corporate
formalities, you insulate yourself from personal liability. At
this point you only risk the property and investment that you put
into the corporation, not what you have personally built.
Another benefit of incorporating in California is that it offers
continuity of existence. A corporation is a separate legal entity
that has a separate "life" from its individual owners. Upon the
death or retirement of an owner, the corporate entity can continue
on. Shares of ownership may transfer upon death or by sale. But
the business entity will continue in existence until it is dissolved.
If you are looking to grow your California business, you will
need to incorporate to gain any attention from potential investors.
This process would be very difficult if you are sole proprietorship
or partnership. Investors tend to shy away from partnership investments
because of a risk that their personal assets will be subject to
the liabilities that may arise from the business in which they
are investing.
The tax benefits of incorporating in California will not only
help your personal taxes but your business taxes as well. Tax advantages
of operating through a corporation include minimized self-employment
taxes and increased the number of allowable deductions lowering
the taxes you pay on the income of the business. Many corporations structure retirement and tax deferred savings plans for their owners
and employees which can provide even greater tax savings.
Many years ago incorporating in California had a bad rap. Many
businesses decided to move to friendlier states to do business.
The State of California recognized this trend and since January
1, 2000, small businesses that incorporate in California or qualify
to do business in the state do not have to pay the minimum Franchise
tax for the first two years. Now, a business that incorporates
in California pays taxes on its taxable income for the first two
years. Prior to this legislation, all corporations also had to
pay the minimum Franchise
tax of $800. Unfortunately this was required
even if your corporation was at a loss.
One of the biggest benefits to incorporating in California is
that any business in the state MUST pay a franchise
tax, so incorporating
in a different state like Delaware of Nevada will not help. Also
as a California Corporation you can use your business address as
the registered
agent address and save yourself annual fees to maintain
an agent in a different state. Bottom line, any business in the
state of California should incorporate in California. It will make
every process from taxation to corporate law compliance easier.
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