So, you’ve decided to incorporate your business in California and form a corporation. This corporate structure provides multiple benefits in California, including certain California tax benefits and legal protections. Every state has different requirements for forming a corporation, and California is no different. Whether you’re incorporating a new business, a small business converting to a corporation, or a multi-national corporation coming to the states, the experienced corporate attorneys at Structure Law Group, LLP can help. Contact our experienced business attorneys at 408-441-7500 or online to schedule your free corporate consultation.
Types of Corporate Entities in California
There are multiple types of business entities in California. From a sole proprietorship to a general stock corporation, you must choose the entity that’s right for you. Once you elect to form a California corporation, you must choose which type of corporation best suits your business. California recognizes the following types of corporations:
- General or Closed Stock Corporations (C-Corporation) – This is the most general type of corporate entity. Large corporations with more than 100 shareholders typically form general stock corporations which can either be for profit or not for profit
- S-Corporation – These corporations do not pay federal income tax, but you must have less than 100 shareholders. Shareholders have limited liability with an S-Corporation, and there are many tax incentives.
- Nonprofit Religious Corporation – These corporations are tax exempt but must file for federal non-profit status. These corporations must be organized as a church or for exclusively religious purposes.
- Nonprofit Public Benefit Corporation (Charities) – Non-religious organizations with a charitable purpose seeking tax exemption can become a non-profit public benefit corporation.
- Nonprofit Mutual Benefit Corporation – This is a popular type of corporate entity that serves both for-profit and not-for-profit purposes. Corporations intending to donate 20% of all proceeds to charity, for example, may elect mutual benefit corporate status.
Limited Liability Companies (LLC) are not incorporated entities in California. If you are a professional or small business, i.e., doctor, accountant, or architect, you should speak with one of our attorneys to determine which entity type is right for you. There are often additional requirements for professionals seeking to form a corporation, i.e. a professional corporation.
Forming a Corporate Entity in California
It’s surprisingly simple to incorporate in California, but there are many additional steps to ensuring that your personal assets and business are protected and in compliance with California corporate law. The only legal requirement is to file Articles of Incorporation and pay California filing fees. To protect yourself from expensive litigation and help your corporation thrive, however, you must consult with a business attorney to draft bylaws, stock purchase agreements and structure your business plan. The following information is required to incorporate in California:
- The unique proposed name of the corporation in line with California legal limitations.
- The physical address of your primary corporate office. This cannot be a P.O. Box or an address in care of another entity.
- A mailing address if different from your physical corporate address.
- The name and address of the corporate agent designated to receive the service of legal papers.
- The number of shares you intend to issue, including any intended classes of shares. There must be at least one share.
- A purpose statement, and
- The signed acknowledgement of all incorporators.
However, just filing the Articles and getting your EIN number does not mean you are finished incorporating in CA. By-laws are not filed with the state. By-laws are secondary to the Articles but the By-laws set out the governance rules of a corporation. If there is any conflict between the articles and by-laws, the articles govern. A few typical areas covered by the by-laws include, procedures for mandatory annual meetings of shareholders and directors (including record date, notice, and voting)., officers and committees., Issuance and transfer of stock certificates. An annual meeting of shareholders must be held for the election of directors on a date and at a time stated in or fixed in accordance with the by-laws. Any shareholder can apply to the superior court of the proper county to order a meeting if either:
- The annual meeting is not held, or action by written consent in lieu of a meeting is not taken for 60 days after the date designated for the annual meeting.
- No meeting is held within 15 months after the last annual meeting, if no meeting date has been designated.
Corporate Action must also be prepared to appoint directors. Each corporation must have a Chief Executive Officer, Chief Financial Officer, and Secretary, but one person may serve multiple or all of these offices. Unless the articles of incorporation state otherwise, shareholders can elect directors by unanimous written consent (except in the case of certain vacancies, which can be filled by the written consent of a majority). Shareholder proposals for publicly traded corporations incorporated in California are also governed by Rule 14a-8 under the Securities Exchange Act of 1934. Having a California business attorney draft articles of incorporation, by-laws, proper corporate actions, voting agreements, etc. and advising you on the annual reporting and other mandatory requirements that are specific to your business needs can greatly increase your chances of succeeding and building adequate legal protections for your needs and keep your corporation compliant.
Contract a California Incorporation Attorney at Structure Law Group, LLP Today
The State of California specifically recommends that new businesses seek the advice of a qualified California business attorney prior to filing their articles of incorporation. Some multi-class stock corporations and tax-exempt corporations must comply with complex regulations before incorporating as a specialized corporate entity. To schedule a pre-incorporation consultation, contact the California business attorneys at Structure Law Group, LLP today at 408-441-7500 or online.