How to Form a California Corporation
How to Form a California Corporation
Forming a corporation helps protect your personal assets from liability for your business’s debts and obligations. It also helps to protect you personally if a business partner or employee is accused of wrongdoing.
Requirements for Incorporating in California
Preparing Your Articles of Incorporation
In California, a corporation is established by filing articles of incorporation with the Secretary of State. To incorporate, you will need to file articles of incorporation and pay a fee. The articles of incorporation must contain the following:
- Name of the corporation
- Corporate purpose
- Agent for service of process
- Street address of the corporation (cannot be a post office box)
- Number of shares being authorized in the corporation
- Signature of each incorporator
When defining the shares for the corporation, your articles of incorporation must meet the following requirements:
- If the corporation will have only one class of shares, the articles of incorporation must list the total number of shares the corporation is authorized to issue.
- If the corporation will have more than one class of shares, or if any class of shares has two or more series, the articles need to specify the following:
- The total number of shares authorized in each class and each series
- The designation of each class or series
- The rights and restrictions that apply to each class or series. Alternately, the articles can state that the board will determine these matters.
Naming Your Corporation
Before you incorporate your business, you can check the availability of your proposed business name by writing to the Secretary of State, or by using an online entity name check service. You can also reserve the name for up to 60 days by filing a Name Reservation Request Form with the Secretary of State and paying a small fee or by using an online entity name reservation service.
Your corporation’s name must also meet the following requirements:
- General stock corporation names do not need to include the words “Corporation,” “Incorporated” or “Limited,” or their abbreviations.
- The name of your corporation cannot be the same as or deceptively similar to the name of an existing California corporation, unless the existing corporation gives you written permission to use the name. The name also cannot be misleading.
California requires new corporations to list the people or entities who are applying to form the corporation. California law provides that one or more natural persons, partnerships, associations or corporations may form a corporation.
Incorporators are responsible for filing the articles of incorporation. If the articles do not name the initial directors, the incorporators can do whatever is necessary to finish setting up the corporation in California, including approving bylaws and electing officers and directors. Once directors are chosen, the incorporators have no further responsibilities.
Requirements for specifying incorporators are as follows:
- Only one incorporator is needed.
- The names and signatures of all incorporators must be listed on the articles of incorporation.
Directors have the responsibility of setting and implementing corporate policy. Directors also have a fiduciary duty to the corporation and its shareholders, which means that they must always act in the corporation’s and shareholders’ best interests.
The requirements for specifying directors for your California corporation are as follows:
- A California corporation with three or more shareholders must have at least three directors.
- If a corporation has only one shareholder, it can have one or more directors. If a corporation has only two shareholders, it can have two or more directors.
- There is no maximum number of directors.
- California does not specify any eligibility requirements for directors.
Specifying a Registered Agent
The articles of incorporation must include the name of the corporation’s registered agent, also known as the agent for service of process or statutory agent. The registered agent is the person or corporation that will receive lawsuits or other legal documents that are served on your corporation.
A registered agent must be a person who lives in California or a company that has registered with the Secretary of State as a corporate agent.
Stating a Corporate Purpose
California law requires you to use the following language to state your corporate purpose. Most corporations use generic language that leaves open all possibilities within the bounds of the law. For 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.”
Determining Incorporation Bylaws
A corporation’s bylaws describe how the company will operate. Bylaws can also contain other rules for the operation of the company, including the way officers and directors are selected, their duties and the way meetings are to be called and conducted.
The requirements for incorporation bylaws in the state of California are as follows:
- A California corporation is required to keep bylaws at its principal place of business in California. They are not filed with the Secretary of State.
- The bylaws must either specify the number of directors or set a minimum and maximum number of directors and state that the exact number will be decided by the board or the shareholders.
- Bylaws cannot include anything that is illegal or that conflicts with the articles of incorporation.
Costs of Incorporating in California
The California Secretary of State requires a fee when filing articles of incorporation or reserving a corporation name. Corporations are also required to pay state and federal income taxes. Certain state tax exemptions apply.
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