California is a leader in great companies and household names. From Silicon Valley to Los Angeles, the state houses some of the biggest technological and entertainment businesses on the planet.
For entrepreneurs with big dreams, starting a corporation is a powerful way to show your commitment and bring those ideas to life. In this guide we’ll talk you through everything you need to know on how to start a corporation in the state of California.
What Type of California Corporation Should You Choose?
Most entrepreneurs will have a choice of starting an LLC, an S Corporation or a C Corporation in California. We’ll help you select the right type of business entity, as each one is treated differently by the CA Secretary of State, the law, the IRS and other official bodies.
Here’s a quick overview of each type of business entity.
Advantages of Forming a Corporation in California
California corporations have several benefits for business owners.
- California corporations provide the strongest form of liability protection possible. They insulate your personal assets and finances from those of your business.
- This means that any liabilities created by your corporation (debts, obligations, damages, bankruptcy or other liabilities) should not impact your personal money, property or assets — they are considered completely separate from a legal perspective.
The Advantages of a California Corporation Over an LLC
Why might you want to choose to incorporate as a CA S Corp or C Corp instead of an LLC? Here are a few reasons.
Taxation Benefits of a California S Corporation Over an LLC
A California S Corporation will often pay less self-employment tax on owner earnings than an LLC. Note that a CA LLC can choose to be treated as an S Corporation for tax purposes by filing Form 2553 with the IRS, which removes this restriction. California C Corporations do not have this advantage over an LLC.
California S Corporations and C Corporations Make It Much Easier to Transfer Stock and Ownership
If You Want Maximum Flexibility for Buying and Selling Stock, Choose a California C Corporation
C Corporations provide certain benefits when it comes to buying, selling and transferring stock. Here are the rules for both S Corps and C Corps:
Advantages of Starting a California S Corporation
In addition to the general benefits above, CA S Corporations provide several other advantages:
Advantages of Setting up a California C Corporation
In addition to the general benefits above, California C Corporations provide several other advantages.
What You Need to Know About Forming a California Corporation
Here are some areas to be aware of when you’re creating a corporation in California.
First, CA corporations are formed on the state level by filing Articles of Incorporation with the Secretary of State. Incfile specializes in helping entrepreneurs form California S Corporations and C Corporations and can collect the information and file this form on your behalf.
When you incorporate a business as a corporation, the California Secretary of State will treat your business as a C Corporation by default. A C Corporation will become an S Corporation when all shareholders wish to change the corporation’s status to an S Corporation with the IRS. You can make this choice when you first form your California corporation or at any time after you incorporate.
There are some similarities and some differences between S Corps and C Corps:
Your California Corporation Must Follow Certain Rules and Regulations
All California corporations must follow stringent compliance rules and regulations. These include financial reports, bylaws, corporate formalities, taxes, fees, business licenses and the like. You can find links to these below.
Are you ready to start your California corporation? If so, we can help. We provide comprehensive corporation formation services for both S Corporations and C Corporations in California.