By: Natalie Zweig 

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Incorporating in California is an excellent choice for many businesses. California offers many benefits to business owners such as legal protection and low taxes. 

The process of incorporation involves legally establishing a company. After formation, the company becomes separate from its owners. The business’s assets and income from owners and investors are separated in the process. The steps to incorporate are fairly similar across the nation, however the cost, taxation and corporate laws vary state to state. Some states are more appealing to business owners due to cost savings and flexibility. Delaware is the most popular state for businesses to incorporate since their laws give business owners flexibility and there is no state corporate income tax during formation. 

A benefit of incorporating in California is that California treats corporations as separate legal entities, separating assets from the business. California corporations hold their own debt and income, meaning if things go south, the corporation is liable, not the owners. California also offers certain tax credits to corporations such as new employment hiring tax credits, California competes tax credits, or California research and development tax credits.  

The corporate tax rate in California is 9%. This is significantly lower than states such as Iowa, for instance, which has a 12% rate; only a few jurisdictions (like Delaware) tax corporations more leniently than "The Golden State." It is worth noting that California charges a minimum annual tax of $800, which may be a disadvantage for small businesses. Also, corporations in California are monitored by the federal, state, and local government, which results in many regulations (and minimal flexibility.). One example: corporations in California must file an abundance of paperwork, including separate books and records and minutes of shareholder/board meetings. In order to satisfy these requirements, a great deal of time and effort must go into the process of incorporation.

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The steps to incorporate in California are as follows:

1. Choose a corporate name.
2. File Articles of Incorporation.
3. Appoint a registered agent.
4. Prepare corporate bylaws.
5. Appoint directors and hold the first board meeting.
6. Issue stock.
7. File a Statement of Information.
8. Comply with California Tax and Regulatory Requirements.

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1. When choosing a corporate name, organizations must choose one that is not already listed in the California Secretary of State's records. Names often include "corporation," "incorporated," or "limited" (but this is not a requirement.)
2. The corporation must file their articles of incorporation with the California Secretary of State. The articles of incorporation include:  corporate name and address, name and address of an agent, number of authorized shares to issue, purpose statement, and cover sheet. There is a $100 filing fee.
3. A registered agent must be appointed for service of process. The agent can be an individual in California, or a corporate agent that has filed a Registered Corporate Agent for Service of Process Certificate. Their role includes accepting legal documents on behalf of the corporation (in the case of a lawsuit.)
4. Next, the corporation makes corporate bylaws to set out rules for operation. This is not a requirement. It is, however, highly encouraged in order to establish rules and prove legitimacy to banks, creditors, the IRS, and other investors. This step also includes making a corporate records book to keep legal documents and important papers.
5. The incorporator then appoints a board of directors until permanent directors are voted on. The incorporator also makes the “Incorporator’s Statement”. It details information about the board of directors. The first meeting of the board can now occur. The initial agenda? Appointing corporate officers, adopting bylaws, selecting a corporate bank, authorizing issuance of shares of stock, setting the corporation's fiscal year, and adopting both an official stock certificate form and corporate seal. All of this information is recorded.
6. Stock is then issued to shareholders in exchange for capital, such as cash, property, or services. California corporations don’t need a par value for their stock. If over 35 people are issued stock, the corporation is classified as a security under state and federal securities laws and will be regulated under the law. To get exemption, you can file a Section 25102(f) Notice Filing - Limited Offering Exemption Notice with the California Department of Business Oversight. This can cost anywhere between $25 to $300. 
7. Every corporation registered in California must file a Statement of Information with the Secretary of State. This must be completed within 90 days after filing the articles of incorporation (and every year after.) Corporations must also file Form SI-550; the cost is $25.
8. The final step? Compliance with California's tax and regulatory requirements. Some of these mandates include: annual minimum tax of $800, additional fees based on income, federal employer identification number, a business license, payroll taxes, and more.

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