How to Incorporate Your Business in California

Looking to Incorporate in California?
Here are step-by-step instructions.

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What are the Steps for Forming a California Corporation?

To form a corporation in California, you’ll need to follow a series of steps. While it is possible to do this yourself, it is advisable to consult with an attorney to ensure compliance with all legal requirements and to assist with the paperwork.  Here’s what you need to know:

Step One: Select a business name

In most states, you’ll need to include a corporate designation or a word that identifies your business as a corporation, such as “Inc.” or “Co.”

When choosing a corporate name, you should also be sure that the name doesn’t infringe on any existing trademarks, and doesn’t use any restricted words. A trademark search can help you ensure that your name is available and the Secretary of State can tell you if the name is legally available.

Step Two: Register a DBA

If you wish to conduct business under a name that differs from your chosen corporate name, you may need to register a fictitious name. This registration enables you to maintain a distinct identity for your corporation separate from your business name. Laws for DBAs can vary by state and the guidelines can be obtained from the Secretary of State.

Step Three: Appoint Directors

During the process of incorporating a corporation, it is common for the owners to appoint directors. These directors can include the owners themselves or other individuals. The responsibilities of directors encompass governing the corporation, overseeing its business and affairs, selecting corporate officers, and participating in corporate meetings. The required number of directors will vary based on state laws and guidelines, as well as the number of owners within the corporation.

Step Four: File Your Articles of Incorporation

To establish your corporation as a distinct business entity, the next step is to complete and file articles of incorporation with the Secretary of State office in your state. These articles typically include important information such as the corporation’s name and address, its purpose, details of the registered agent (the designated contact person), and the type and number of shares of stock to be issued.

The registered agent plays a crucial role in receiving service of process notices, government correspondence, and compliance-related documents on behalf of the corporation.

It’s important to note that depending on the state, articles of incorporation may be referred to as the certificate of formation or certificate of incorporation. Regardless of the terminology, this filing solidifies your corporation’s legal status as an independent entity.

Step Five: Write Your Corporate Bylaws

An additional crucial task is drafting corporate bylaws, which establish the governance framework for your corporation. Bylaws consist of written rules that outline how your corporation will be governed.

Although filing the bylaws with the state is not mandatory, it is an essential component of the incorporation process. Seeking legal assistance when crafting corporate bylaws can provide valuable guidance to ensure comprehensive coverage and avoid any oversight.

Having well-crafted corporate bylaws in place ensures clarity and consistency in the governance of your corporation, promoting effective decision-making and operational efficiency.

Step Six: Draft a Shareholder Agreement

A shareholder agreement serves as a crucial tool to safeguard the interests of remaining shareholders in the event of specific circumstances. This agreement becomes relevant in scenarios such as the death of an owner or the transfer of ownership of shares by an owner.

While not obligatory, a shareholder agreement is highly beneficial to have in unforeseen situations. It provides clarity and protection for shareholders, outlining rights, obligations, and procedures to be followed. In the event that such circumstances arise, a well-drafted shareholder agreement can help mitigate potential disputes and ensure a smoother transition.

Step Seven: Hold an Initial Board of Directors Meeting

Regardless of the number of directors in your corporation, conducting an initial meeting with the entire board is crucial. This meeting provides direction and clarity, enabling the board to make well-informed decisions regarding the corporation.

During the initial board of directors meeting, important matters to cover include:

• Adoption of corporate bylaws
• Appointment of corporate officers
• Authorization to issue stock

Furthermore, if you intend to elect S corporation status, it is essential to discuss this at the initial meeting and obtain approval from the board.

The initial board of directors meeting sets the foundation for the corporation’s governance and operations. It ensures alignment among directors, establishes key protocols, and facilitates the smooth functioning of the corporation. Seeking guidance from legal professionals can be beneficial in ensuring that all necessary topics are addressed and appropriate approvals are obtained.

Step Eight: Issue Stock

Within this business structure, issuing stock serves as a means to finance the corporation. Once authorized by the board of directors, you can proceed with issuing and distributing stock to investors.

When issuing stock, it is crucial to maintain accurate records of the following details:

• The identity of the purchasers
• The quantity of shares purchased
• The cost of the shares
• The date of the share acquisition

Typically, stock issuance can take the form of physical certificates or digital shares, depending on the preferences and practices of the corporation.

Recording these key pieces of information ensures transparency and accountability in the allocation of shares, facilitating proper documentation and tracking of ownership within the corporation.

Step Nine: Obtain Business Permits and Licenses

In order to commence operations as a corporation, it is crucial to acquire all the necessary permits and licenses required by law.

The specific permits and licenses needed depend on various factors, including:

• Local laws and regulations of the city and county where the business operates
• Applicable state government and federal laws
• The specific industry in which the corporation operates

To initiate the application process, it is advisable to refer to the Small Business Administration website, which provides detailed information on the specific requirements outlined by your state.

Ensuring compliance with the relevant permits and licenses is essential for maintaining legal and regulatory adherence, establishing credibility, and facilitating smooth business operations. By diligently following the necessary procedures, you can establish a strong foundation for your corporation’s success.

Step Ten: Register Your Business

As corporations are distinct taxable entities, it is important to obtain specific tax identification numbers to ensure proper compliance with tax obligations.

Typically, you will need tax ID numbers from the following entities:

• The Internal Revenue Service (IRS)
• Your state’s revenue agency

The taxation requirements for your corporation can vary based on the state where you conduct business and the type of corporation. To stay informed about the latest information regarding corporate taxation, it is recommended to visit the IRS website, which provides up-to-date guidance on tax-related matters.

By obtaining the necessary tax ID numbers and staying informed about the applicable tax regulations, you can ensure that your corporation meets its tax obligations accurately and efficiently. This helps maintain compliance and mitigates potential issues with tax authorities.

Step Eleven: Open a Corporate Bank Account

You’ll need to open a dedicated corporate bank account. This account serves as an independent entity, separate from the personal bank accounts of the owners. By doing so, you create a clear separation between personal funds and any potential business liabilities.

It is important to consult with your chosen bank to understand the specific documents and information needed for the account opening process. Examples of required documents may include a corporate resolution, articles of incorporation, and an employer identification number (EIN).

By fulfilling the necessary requirements and providing the requested documentation, you can ensure a smooth and secure establishment of your corporation’s bank account. This separation of finances contributes to better financial organization and safeguards personal funds from potential business-related risks.

Need Assistance?

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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