How To Incorporate In California

This is a Hub Page about how to incorporate a small business in California. Having said that, the first decision you need to make is whether you really want to incorporate. Incorporation can provide liability protection, tax benefits, and create an appearance of professionalism. However, there are some potential drawbacks too:

1. California charges some corporations $800 a year just to operate in the state, regardless of whether you generate any income. Is your corporation going to generate enough income to merit this annual expense?
2. Corporate status requires ongoing compliance, including annual and biannual filings. Are you willing to keep up with these requirements or pay someone else to?
3. All corporations must file separate tax returns that are more complicated and complex than individual returns. Are you comfortable taking on this added responsibility, or paying hundreds of dollars for a professional to do it for you?

If you have carefully considered these issues and are still convinced that you need to incorporate, then read on...

To incorporate in California, you must file your Articles of Incorporation with the Secretary of State's office. This can be done in person, using a filing service, or by mail. Your Articles of Incorporation must include the following 5 articles:

1. Your Corporate Name. You can check the availability of your corporate name at the Secretary of State's (SOS) website. Unless you're a professional corporation (legal, medicine, etc), your name must include the word "corporation," "incorporated" or "limited" or an abbreviation of one of these words. Professional corporations have additional requirements. Check the SOS website.
2. Corporate Purpose. You must state the purpose for which your corporation is being formed. At the time of this writing, with few exceptions (professional corporations), you should use the following example: " The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code."
3. List your Agent for Service of Process. This is a person (or corporation) that is authorized to receive service of legal documents (lawsuits, etc). If you list a person, they must reside in California and you must include the agent's street address (no PO boxes). If you use a corporation, they must be an active corporation in California (no address is necessary).
4. List the number of shares being issued. This number can be any number larger than zero (0) and is usually something like 100.
5. The signature of the incorporator(s). The Articles must be signed and dated by the incorporator or incorporators.

(Note: This list is the most common requirements for the majority of for-profit corporations, including S-Corps. Certain types of corporations may have additional requirements. You can find those on the SOS's website. You can also use a standard form, found here, for most general stock corporations.)

Now that you've completed your Articles of Incorporation, there are still a few more steps:

1. Submit your Articles, along with the appropriate filing fee, to the California Secretary of State for approval. For a General Stock Corporation, the $100 fee and your Articles need to be mailed to: Secretary of State, Business Entities, P.O. Box 944260, Sacramento, CA 94244-2600.
2. Approval can take months, but for less complex organizations, 3-4 weeks is more likely.

Once you've received approval for your corporation, there are still a few things that need to be completed before you begin operations:

1. Apply to the IRS for an Employee Identification Number (EIN). You will need an EIN to open a bank account in the name of your business. The EIN can be completed online, or by downloading and submitting the proper form (SS-4). Instructions for completing the SS-4 can be found here.
2. File your initial Statement of Information (SOI) with the California Secretary of State. This can be completed online. The fee is about $25. An SOI must be filed annually or biannually, depending on your corporation.
3. If you want to operate as an S-Corp, now is the time to make that election with the IRS. You must complete and submit IRS Form 2553 to the IRS for approval. Response from the IRS normally takes 3-4 weeks.

If you have successfully completed all of the above steps, CONGRATULATIONS on your new corporation!

Please note that these instructions cover the basic steps needed for incorporating most small businesses in California. They are NOT meant to be comprehensive and they should NOT be understood or construed as legal advice. Starting and operating a corporation has many legal implications not discussed here. The author recommends that you contact an attorney and a Certified Public Accountant to review your decisions, questions or concerns. All forms, fees, and instructions in this Hubpage were current at the time of writing, December 2011.

Brice Yocum is an attorney licensed to practice in California (#258696). He is also an Assistant Professor of Business at Fresno Pacific University and blogs at WhoStoleMyOffice.com. You can contact Mr. Yocum at brice@yocumlegal.com.