California Business Entities – To Incorporate or Not to Incorporate

March 24th, 2022 by admin Leave a reply »

If you created a business in California it may be within your interest to file for incorporation through the Secretary of State. Corporations provide a business with numerous benefits such as, the ability to attract investors, while at the same time safeguard the business’ owners from complications that may arise. The creation of a corporation also allows for the establishment of clear power structure of shareholders, directors, and officers: Shareholders are primary owners of the corporation and are usually not financially liable for any debts incurred by the corporation, directors insure that the shareholder’s assets are secure by planning long term goals for the corporation, as well as hire (and fire) officers who perform the day to day tasks for the corporation.

The State of California also allows you to file for incorporation as one of five different entities, listed below: Corporation – An entirely separate taxable entity that is created apart from the owners which helps protect the owner from debts and legal liability that the corporation may incur. Limited Liability Companies – Protects an owner’s assets from debts, while allowing allow profits to flow directly to the individual owners where they are taxed a part of their income. General Partnership – Keeps liability on the owners, which are known as partners, but equally distributes any profits or debts to each partner of the business

Limited Partnership – A combination of general partners as well as one or more limited partners who are only liable for debts that are equal to their investment and do not run the business Limited Liability Partnership – Each partner’s liability varies and each partner is not responsible for another’s misconduct. In California only certain businesses can form these.

What a Corporation Needs to File:

For your business to become a corporation requires a number of documents be submitted and multiple fees must be paid. First your aspiring corporation must submit an Articles of Incorporation, which is a single document that includes: the name of the corporation, the California Corporations Code, and name of the initial agent for service of process among other items. The fee to file the Articles of Incorporation for a company is $100, plus a supplementary $15 if filed by hand. After filing the Articles of Incorporation a Statement of Information must be submitted within a 90 days for a fee of $25 or $20 if you are a non-profit business. This form requires most basic information of your corporation such as location, name, and type of business. However, this particular form must be resubmitted annually by the corporation and bi-annually for a non-profit corporation as failure to do can result in suspension of the corporation. Your corporation is also responsible to have many other internal forms kept in the records at all times. For one your corporation must have an established, agreed upon set of bylaws. The bylaws act essentially as your corporation’s constitution of how you will operate. Next is any and all corporate resolutions, which are documents approved by your board of directors on what actions specific individual’s are authorized to do. Lastly your corporation must keep minutes in the records, which is documentation of all shareholder and director meetings. Failure to include any of the mentioned documents could be extremely costly to your corporation in a lawsuit.

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