Guide to California Corporations
Each state has different rules for corporations, and this guide will focus on how California corporations work.
This guide is part of our more general Guide to the Law for Entrepreneurs and Business Owners in California.
1. What is a California corporation?
A California corporation is a corporation that is registered with the California Secretary of State. A corporation is a legally recognized business entity that is considered separate from its owner(s). There are many benefits to having a separate legal entity, which you can read about at our Guide to Business Structures in California.
What are the different types of corporations in California?
There are quite a few types of corporations in California. The most common ones are as follows:
- General Stock corporation
- Close corporation
- Professional corporation
- Benefit corporation
- Social purpose corporation
- Nonprofit mutual benefit corporation
- Nonprofit public benefit corporation
The general stock corporation is the standard and most common corporation. Stock refers to the fact that the corporation issues shares to the owners, as opposed to a nonprofit corporation which does not issue shares.
A close corporation may be used for small businesses.
Certain licensed professionals, including architects, lawyers, or medical professionals, are limited to forming a professional corporation (or an LLP).
For info on Benefit Corporations and Social Purpose Corporations, see our Guide to Social Enterprise in California.
Tax treatments: S corporation and C corporation
A corporation may choose one of two tax treatments: S corporation, or C corporation. Note that these are not really different types of corporations, and are not alternatives to the above types of corporations. These simply describe how the corporation is taxed, and can generally be applied to any of the above (aside from the nonprofit corporations).
By default, a corporation is considered a C Corporation; but the corporation can also choose to be taxed as an S corporation. As a C Corporation, the corporation itself is taxed on its earnings, and then when the income of the corporation is passed to the owners of the corporation, the owners are taxed as individuals. This situation is known as “double taxation.”
What is an “S corporation”?
An S corp or S corporation is simply a corporation that has filed paperwork to be taxed only through the owners, and not the entity itself. This avoids the “double taxation” of C corporations. This is often a way to save on taxes, but discuss with a tax professional for your particular situation. See more at our full Guide to S Corporations.
What is a “foreign corporation”?
Foreign corporation (or foreign stock corporation) means a corporation based outside of California. It does NOT necessarily mean international corporations, but generally refers to corporations established in other states, commonly Delaware or Nevada.
This is in contrast to a domestic corporation (or domestic stock corporation) which is simply a corporation incorporated in California.
2. Creating a corporation in California – “Formation”
Creating or registering a corporation is known as formation, forming the corporation, or incorporating.
How do I create a corporation in California?
A corporation is created in California by filing Articles of Incorporation with the California Secretary of State. The Articles of Incorporation can be as simple as a one-page document that includes the following at a minimum:
- Name of the corporation
- Address of the corporation
- Agent for service of process
- Number of shares the corporation is authorized to issue
- Incorporator name and signature
You can find the standard form for Articles of Incorporation, the ARTS-GS form, at the Secretary of State’s website. You can file it by submitting it online, by mail, or in person.
Once the Secretary of State receives the Articles of Incorporation, along with the filing fee of $100, they will review it for completeness and compliance with the law. If it complies with the law, they will file it, and your corporation will be ready to go!
Although it really is that simple to legally create the corporation, there are further steps to take to ensure it is fully set up.
How do I set up a corporation in California?
After the Articles of Incorporation are filed with the Secretary of State, you will need to take the following steps:
- Prepare other initial documents, including resolutions, stock certificates, etc.
- Obtain an EIN from the IRS.
- If applicable, file paperwork with IRS to select your tax treatment. The corporation is automatically a C corporation unless it elects to be an S corporation. For S corporation tax treatment, file Form 2553.
- Prepare and have Directors sign operating document (called Bylaws).
- Properly file for any required licenses or permits.
- Open a bank account in the full name of the corporation and keep the finances separate from your personal finances.
- Make sure contracts are in the full name of the corporation.
- Use the full corporate name on your website, business cards, etc.
- Properly file and pay taxes and fees.
- Properly file initial Statement of Information, and subsequent Statements of Information every year.
How much does it cost to start a corporation in California?
A minimum of $150, depending on how the shares are distributed. This includes just the initial filing fees for the Articles of Incorporation ($100), initial Statement of Information ($25), and, assuming it is a small group of shareholders, the notice of exemption filing with the Department of Financial Protection and Innovation ($25). For more complex shareholder arrangements, the filing with the DFPI may be more complicated and more costly.
Now, aside from government fees, you may also consider fees for an attorney, if you hire one to help set up the corporation, which can range from $500-2500+.
3. California corporation costs
What are all the costs associated with a California corporation?
Considering just the government fees, here are the costs of an corporation in California:
Initial filing fee: $100
Filing with the Department of Financial Protection and Innovation: $25+
Statement of information: $25 (every year)
Annual franchise tax: $800 (every year – April 15)
Again, aside from government fees, you may also consider fees for an attorney, if you hire one to help set up the corporation, which can range from $500-2500+. And consider fees for a tax professional (such as a CPA), which may be $250-$1000+ per year.
4. Corporate Taxation in California
How is a corporation taxed in California?
By default, a corporation is taxed as a C corporation. However, a corporation can also choose to be taxed as an “S corporation.” See more about Business Taxes.
If you have additional questions or need help with your California corporation, discuss with a lawyer and tax professional.