To form a corporation in California, you must register with the California Secretary of State. However, California does not register corporations as "S corporations" -- S corporation status is a taxation category established under the federal Internal Revenue Code. Once California has established your corporation, you may apply for S corporation status with the IRS. S corporation status offers income tax advantages to small businesses. However, not all companies qualify for S corporation status.
Choose a name for your corporation. Check the California Secretary of State website's business entity name availability search page to confirm that your chosen name is not in use by another corporation. The name must include a suffix such as "Incorporated" or "Inc." to indicate corporate status.
Appoint at least three directors for your corporation, if your corporation will have at least three shareholders. If your corporation will have fewer than three shareholders, however, California law allows you to appoint as few directors as there are shareholders -- one director if the corporation has only one shareholder and two if the corporation has two shareholders. Obtain the directors' consent to their appointments. Directors may be shareholders, and they do not have to be California residents.
Appoint a registered agent to receive official communications on behalf of your corporation. The registered agent must be a California resident.
Draft the corporation's Articles of Incorporation. The website of the California Secretary of State offers a sample form to guide you. The Articles of Incorporation should list the name of the corporation, the name and address of the registered agent, the corporation's legal address, the name and address of the person filing the Articles of Incorporation, the names and addresses of the directors, the company's business purpose ("any lawful purpose" is acceptable), the number of authorized shares and the par value of the shares. You do not have to list the names of the shareholders.
File the Articles of Incorporation with the California Secretary of State along with a filing fee of $100 (as of the date of publication).
File Form 2553 with the IRS to apply for S corporation taxation status. There is no filing fee. To qualify for S corporation status, you must meet certain legal standards, such as no more than 100 shareholders and only one class of stock.
The IRS does not impose income tax on S corporations, except for certain types of passive income. Instead, corporate income is attributed to shareholders in proportion to their ownership stake in the corporation.
It is useful to create bylaws for your corporation shortly after you file the Articles of Incorporation. Bylaws typically cover voting rights, corporate officers, shareholders' and directors' meetings, quorums and the division of authority between the directors and the shareholders. Although states do not require you to create bylaws, they function as a corporate constitution that can help avoid disputes and resolve them when they cannot be avoided. Corporate bylaws are admissible as evidence in court.
S corporations doing business in California must pay state income tax.
- Citizen Media Law Project: Forming a Corporaiton in California; January 2008
- California Law Report; How to Form a Corporation in California Without Pulling Out All of Your Hair; John Corcoran
- Internal Revenue Service: S Corporations; December 2010
- California Secretary of State Debra Bowen: Frequently Asked Questions; 2011
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