Forming a corporation for your business can offer many advantages, including a more professional image, fringe and tax benefits, and asset protection. However, it involves more than just filing some paperwork. All proper steps must be taken to form the corporation. If you fail to do so, you run the risk of losing the benefits of incorporation.
To form a corporation in California, here are the general steps:
- File Articles of Incorporation
This document lists foundational information for your corporation, such as the name of the corporation, its purpose, agent information, and the authorized number of corporate shares. It is filed with the Secretary of State. You'll need to choose a unique corporate name, designate a registered agent for service of process, and pay the filing fee.
- Appoint directors
If the Articles of Incorporation do not indicate the initial directors of the corporation, this will be the job of the incorporator. (The incorporator is the person who signs and files the articles of incorporation. This person might also perform other tasks, such as adopting bylaws, prior to resigning and letting the directors take over.)
- Draft corporate bylaws
Your corporation will need bylaws, which are essentially the internal rules by which your corporation will operate. They include items like the time and date of annual meetings and procedures for electing directors and officers. While not filed with the Secretary of State, this is an important document to keep with your corporate records.
- Develop a record book
A corporate record book will allow you to keep all documentation (minutes, bylaws, stock ledger, etc.) required of your corporation in one place. If someone tries to claim later on that corporate formalities were not followed, your record book will have all the documents in one place.
- Hold initial meeting of Board of Directors
The directors must hold a meeting to take care of initial corporate requirements, such as adopting bylaws, appointing corporate officers, and choosing a financial institution and corporate seal. Minutes of the meeting must be signed and kept with the corporate records.
- Issue corporate shares
In addition to issuing paper certificates reflecting the stock issued, you should fill out the stock ledger in your corporate record book. Small corporations are generally exempt from state and federal securities requirements. However, you will have to file an exemption form in California to claim the exemption.
- Comply with other state and federal requirements
Once your corporation is set up, there are other miscellaneous requirements, both initial and ongoing:
- File a Statement of Information with the Secretary of State (when you file your Articles of Incorporation and then yearly)
- Obtain an employer identification number (EIN) from the IRS
- File a subchapter S election, if applicable
- Obtain and maintain necessary business licenses for your business' industry
- Comply with California requirements, including registering with the Employment Development Department, as well as paying the annual minimum tax to the Franchise Tax Board
- Hold annual shareholder meetings (shareholders will elect the Board of Directors annually, among other things)
Choosing to incorporate can put your business on the right path to success. But it must be done properly, and thereafter, corporate formalities must be followed. This will help ensure you are able to reap the full benefits of forming this type of entity for your business.
Helix Law Firm can help with the incorporation process
We can help you understand your options and determine if incorporation is in the best interests of your business, or if another entity would be more appropriate. We can also help you get off on the right foot and make sure your business's continuing legal obligations are met.
If you're interested in forming a corporation or other entity for your business, please call us at (619) 567-4447 to schedule a free consultation.