Are you interested in incorporating a business in the state of California? Do you need process paperwork for business registration and Articles of Incorporation? Let’s walk through the different types of corporations and the necessary steps for forming a corporation in California. If you need help along the way, the CorpNet team is here to help!
The authority for incorporating in California is under the Business Entities Section of the California Secretary of State. This is the government agency responsible for all forms, filings, and record keeping. Fictitious business names (DBA – doing business as) are filed at the county level, not the Secretary of State. Other business permits and licenses may be required at the county or even city level in California. The usual point of contact is the County Treasurer’s Office.
Types of Corporations
Incorporating a Business provides many benefits for any business, regardless of the type or size of the business. Once you have decided that the benefits of incorporating a business outweigh the costs, the next step is to decide what type of corporation is right for your specific business activity?
For most, there are generally four types of corporations to choose from:
- C Corporation – The C Corporation is the most common form of corporate entity. Also known as a “General for profit corporation”, the C Corporation is owned by shareholders. The shareholders elect a board of directors to create and direct the high-level policies of the business.
- S Corporation – An S Corporation is formed in the same way that a C Corporation is formed, however, the S Corporation is different from a C Corporation in two significant ways. The S Corporation makes an election to be taxed as a “pass-through entity” under subchapter S of the Internal Revenue Code and the S Corporation has limitations on ownership.
- Nonprofit Corporation – A Nonprofit Corporation is for those groups that are formed for charitable, educational, religious, literary or scientific purposes, and not for the purpose of generating profits for its shareholders.
- Professional Corporation – Where a business provides a professional service, most states have special filing requirements when incorporating and will require a Professional Corporation be registered.
To compare more attributes for each type of corporation and compare them to other business structures, please visit our Business Structures Chart.
Five Basic Steps to Incorporate in California
- Search to make sure your company name is available. You can use the free CorpNet company name search. Your corporate name in California does not require one of the suffixes, Corporation (or Corp.), or Incorporated (Inc.) unless it is a close corporation. A close corporation is defined as follows: “Close corporation” means a corporation whose articles contain, in addition to the provisions required by Section 202, a provision that all of the corporation’s issued shares of all classes shall be held of record by not more than a specified number of persons, not exceeding 35, and a statement “This corporation is a close corporation.” California does restrict the names, and those who wish to incorporate in the banking business, trust business, or a professional business are subject to the rules regulating those specific areas. So, for instance, an acupuncturist may have naming requirements based on their license to practice in California.
- Register your corporation (or LLC) with the Secretary of State. CorpNet offers filings of the Articles of Incorporation (for corporate structures) and for LLCs, Articles of Organization. Bylaws (for corporations) and Operating Agreements (for LLCs) are not filed with the Secretary of State, but are kept at corporate offices.
- Hold the first official meeting for the corporation and adopt the Corporate Bylaws. This is a legal meeting and must be recorded as such. (See the section below about officers and documentation.)
- Apply for a Federal Employer Identification Number (EIN) under the corporate name. In California, you will also have to file with the Employment Development Department (EDD). The EDD issues employer account numbers (sometimes called state employer identification numbers, SEINs, state ID numbers, or reserve account numbers) and administers California’s payroll taxes, including Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding.
- Obtain any specific licenses and permits required, either statewide or for the county in which you will do business. Some examples would be: electrician’s license, trucking licenses and permits, liquor license, etc. These are not handled by the Secretary of State. The Governor’s Office of Economic Development provides resources for permit information.
Foreign and Domestic Corporations
A foreign corporation is a corporation registered in another State that does business in California. Foreign corporations must file a Statement and Designation by Foreign Corporation with the Secretary of State’s Office. You will be required to obtain and submit a certificate of good standing from the incorporating State. Specific licenses and permits may still be required, and for professions, the regulatory body in California should be consulted.
Domestic corporations are those formed in California itself. While there is no residency requirement for directors or officers of California corporations, but an Agent for Service of Process must then appear. An agent for service of process is an individual who resides in California, or a corporation, designated to accept service of process (court papers) if the business entity is sued. If a corporation is designated as agent for service of process, that corporation must have previously filed a certificate pursuant to California Corporations Code section 1505. A corporation cannot act as its own agent for service of process.
Officers and Documents
Directors do not have to be named on the Articles of Incorporation; this can be filed by an incorporator. However, if the directors are named, they must sign the document. Incorporators do not have to be listed in the Articles of Incorporation.
The minimum number of directors depends on how the stock is divided. If there are only one or two stockholders, then only that many directors are required. Otherwise, the minimum is three. Within 90 days of filing the original Articles of Incorporation, an initial statement of officers must be filed. Information about officers, stockholders, minutes of required meetings and annual reports have to be maintained at the corporate offices even though they are not filed with the Secretary of State.
- Articles of Incorporation – There are five types, depending on if the corporation is close, stock, professional, common interest development, or if the corporation is non-profit mutual benefit, public benefit or religious.
- Certificate Pursuant to Corporations Code Section 1505 – This is used to designate an agent of process.
- Corporate Disclosure Statement – Filed annually for publically traded stock issuing corporations.
- Statement of Information – Filed within 90 days of original incorporation and then annually. It provides the State with information about corporate officers and structure. There is a different version for non-profits. This document restates much of the original information for the corporation, such as nature of the business and contact information.
- Name Reservation Form – Used to verify and reserve a corporate name before Articles are filed. It is valid for 60 days.
Forming a Corporation Online
CorpNet can help you incorporate in California online or via phone. This can include the process of Business Name Reservations.
We offer complete packages that allow you to start your corporation without missing key steps or documents. Our experts guide you through the process and unlimited customer support is included. This lets you focus on managing your business instead of getting stuck in state mandated paperwork.