Incorporating your business in California can be a great way to protect your personal assets and liability, but it is important to be aware of the common legal mistakes that corporations make. By avoiding these mistakes, you can help to protect your business and reduce your legal liability.

Common legal mistakes made by California corporations:

  • Not filing the required paperwork. One of the most common mistakes is not filing the required paperwork with the California Secretary of State. This includes the Articles of Incorporation and the Statement of Information. Failure to file the required paperwork can result in fines and penalties, and it can also make it difficult to do business.
  • Not holding regular board meetings.  Corporations are required to hold regular board meetings to discuss important business matters. These meetings should be documented in the minutes of the meeting. Failure to hold regular board meetings can make it difficult to make decisions and can also lead to disputes among shareholders.  Additionally, this would likely result in the Corporation’s “veil” being pierced in the event of a lawsuit resulting in personal liability being assessed against all the Shareholders.
  • Not keeping accurate corporate records. Corporations are required to keep accurate records of their business activities. These records should include the Articles of Incorporation, the minutes of board meetings, the stock ledger, and the financial statements. Failure to keep accurate corporate records can make it difficult to defend against lawsuits and can also make it difficult to sell or dissolve the corporation.
  • Not following corporate formalities. Corporations are required to follow certain formalities, such as holding board meetings and keeping accurate records. Failure to follow these formalities can make it difficult to prove that the corporation is a separate legal entity from its shareholders. This can make it difficult to protect the corporation’s assets and those of the shareholders from liability.
  • Not updating the corporate records. The corporate records should be updated regularly to reflect changes in the corporation’s ownership, officers, and directors. Failure to update the corporate records can make it difficult to prove who owns the corporation and who has the authority to make decisions on its behalf.

Tips for avoiding these common legal mistakes:

  • Hire an experienced attorney to help you incorporate your business. An attorney can help you file the required paperwork and ensure that you comply with all applicable laws and regulations.
  • Keep accurate corporate records. This includes the Articles of Incorporation, the minutes of board meetings, the stock ledger, and the financial statements.
  • Hold regular board meetings. These meetings should be documented in the minutes of the meeting.
  • Follow corporate formalities. This includes holding board meetings and keeping accurate records.
  • Update the corporate records regularly. This includes updating the ownership, officers, and directors.

If you have any questions about the legal requirements for incorporating your business in California, or if you need help avoiding common legal mistakes, contact the legal team at California Business Formations for assistance.

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We understand that incorporating your business in California may seem overwhelming at this point.  Schedule a business strategy session with our team of legal experts and we’ll help you get it done efficiently and effectively!

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