Easy nine step guide for Startup or small business owners interested in forming a corporation in California.
1. Choosing a Business Name for the Corporation and Check for Availability
Your business name may not be the same as, or deceptively similar to, other corporate names on file with the Secretary of State (limited exceptions apply). Additionally, the name may not contain the words “bank,” “trust”, “trustee,” or related words. Although you are not required to do so, consider registering your business name as a federal and/or state trademark.
2. Recruit and/or Appoint a Director or Directors for the Corporation
Under California law, a corporation must have at least three directors, unless there are less than three shareholders. In that case, the number of directors may be equal to or greater than the number of shareholders. For example, if the corporation has only one shareholder, the number of directors may be one or two. If the corporation has two shareholders, the number of directors may be two (or three, which is the normal minimum).
California does not set forth a minimum age or residency requirement for directors. Either the articles of incorporation or the corporation’s bylaws must state the number of directors that will constitute the corporation’s board of directors.
3. Prepare and File Articles of Incorporation with the Secretary of the State
The filing fee is $100. The Secretary of State website has a sample of articles of incorporations with instructions.
4. Create Corporation’s Bylaws
California law requires a corporation to create bylaws. There is no set criteria for the content of bylaws, but they typically set forth internal rules and procedures for the corporation, touching on issues like the existence and responsibilities of corporate offices, the size of the board of directors and the manner and term of their election, how and when board and shareholder meetings will be held, who may call meetings, and how the board of directors will function. You are not required to file bylaws with the Secretary of State, but the corporation must keep a copy at its principal place a business.
5. File a Statement of Information with the Secretary of State.
The filing fee is $25. The Secretary of State’s website has a simple, fill in the blank form for the Statement of Information. Instructions are included. It must be filled within 90 days of filing the articles of incorporation.
6. Determine What Tax and other Regulatory Obligations
Request an Employer Identification Number (EIN) from the IRS. There is no filing fee. If you will be paying at least $100 to an employee or employees in a quarter (this includes corporate officers), you are subject to California employment taxes and must register for a California employer account number within 15 days of paying that $100. You can register for employment taxes and get your account number online using the Employment Development Department’s website. These taxes must be paid quarterly. Whenever you hire an employee in California, you must inform both the IRS and the State of California. The IRS details all of the necessary steps, including verifying work eligibility and withholding allowances certificates, on its page entitled Hiring Employees. You can find information for the state level in the California Employer’s Guide and on the website for California’s New Hire Reporting Program.
If you have employees in California, you must carry workers’ compensation insurance. There are other informational returns that you may have to file annually or semi-annually with both the IRS and the state.
California imposes an $800 minimum franchise tax on corporation doing business in the state. This minimum tax is separate from any income, self-employment, or payroll tax. For many, this $800 minimum tax could be significant impediment to forming a corporation in California, especially if you have little or no expected income from your online publishing activities. California’s current income tax rate for corporations is 8.84%.
7. Open a Bank Account for Your Business.
It is a good idea to keep business’s finances separate from your personal accounts. A good way to do this early on is by opening a bank account for your corporation. You will probably need a Tax ID number (EIN), a copy of the articles of incorporation, and a resolution identifying authorized signers if those names are not listed in the articles.