California S Corporation Formation
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Why use UpCounsel to form an S Corporation in California
Starting an S Corporation in California with a business startup attorney on UpCounsel is easy, informative, and cost-effective. In just three simple steps, our S Corporation attorneys will help you protect your business and personal assets, and help you organize your business for state and federal compliance for an S Corporation.
When forming an S Corporation in California with UpCounsel, the attorney you choose to help you will conduct a business name search for your California corporation and assist you in preparing your S Corporation Operating Agreement, along with providing other legal services based on your needs. Once your Articles of Incorporation have been prepared and successfully filed with the California Secretary of State, your California corporation has been formed and begins its existence as a Corporation entity.
However, a corporation does not register as an S Corporation with the Secretary of State. It registers as a corporation with the state and then may file for S Corporation status with the IRS. S Corporation status is a taxation category which provides income tax advantages to small businesses.
Requirements for Forming a California S Corporation
Choosing a Company Name for Your S Corporation
One of the first steps in the process of forming your CA S Corporation is to choose your business name.
The business name that you choose must contain the words "Incorporated" or "Inc." It must be distinguishable (not the same as or deceptively similar to) the name of an S Corp or foreign S Corporation reserved or registered.
Your S Corporation name may contain the name of one or more members.
By using UpCounsel, you can choose several business names in order of preference. Your attorney of choice can then conduct a name check for your California S Corp before filing to see which names are available. Once you have chosen an available name, your chosen S Corporation attorney can help you properly register your name with the State of California.
Articles of Incorporation: When forming an S Corporation in California, the Articles of Incorporation must be filed with the California Secretary of State. California state law requires that certain information be included in your Articles of Incorporation when forming your California S Corporation.
This information must include:
- The S-Corp's name and address.
- The name and address of person filing the Articles of Incorporation
- The S-Corp's purpose.
- The S-Corp's registered agent's name, address, and signature (accepting the position).
- The names and addresses of the directors.
- The par value of the shares and number of authorized shares.
S Corporation Qualification Requirements: For a corporation to qualify as a S Corporation for tax purposes, it must meet the following requirements:
- Must be a domestic corporation.
- Have only allowable shareholders including individual, certain trusts, and estates; and may not include partnerships, corporations or non-resident shareholders.
- Have only one class of stock
- Have no more than 100 shareholders
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
Additionally, a California S Corporation formation generally requires inclusion and/or consideration of the following:
S Corporation Operating Agreement: Although the S Corporation Operating Agreement is not required with the Articles of Incorporation, it is a good idea for every S Corporation with more than one member to have one. The Articles of Incorporation may contain restrictions or prohibitions on the power of the members to adopt, amend, or repeal an operating agreement. California recognizes operating agreements as governing documents.
Membership: A S Corporation must have one or more members.
Eligibility Requirements: A natural person or an entity.
Procedure for Membership: The member may acquire an interest in the S Corporation directly from the limited liability company at the time of formation and, after formation, at the time provided in and upon compliance with the Articles of Incorporation or the operating agreement or, if not provided, only upon the vote of a majority in interest of the S Corporation members, excluding the vote of the person acquiring the membership interest, and only when the person becomes a party to the S-Corp's operating agreement.
Business Licenses: Business licenses and/or permits are required for most S-Corp's offering specific professional services. Contact the California State Corporations Commission for specific licenses.
Resident Agent needed for a California S Corporation
Remember every California S Corporation must have a registered agent in the state, which is the person or office designated to receive official state correspondence and notice if the company is "served" with a lawsuit. The registered agent may be a full-time resident of California or a business entity that has authority to transact business in California. A physical California street address is required of the registered agent.
California Secretary of State
Once you create an S Corporation in California, the California Secretary of State will require that certain recurring responsibilities and duties be fulfilled. The most important of these are explained below.
For further information, contact the California Secretary of State.
Filing Fees for a California S Corporation
The processing fee for the Articles of Incorporation is generally about $100. These fees can change so it would be best to check with the California Secretary of State on what the latest fees are. You may pay these fees in many different forms including cash, check, money orders, or debit and credit cards.
Taxes for a California S Corporation
A California S Corporation is a special type of corporation created through an IRS tax election. An eligible corporation can avoid double taxation (once to the corporation and again to the shareholders) by a corporation with a Subchapter S designation by the IRS. A corporation must file a Form 2553 to elect "S" status within two months and 15 days after the beginning of the tax year.
Owners of the S Corporation report business losses or profits on their personal tax returns, and therefore the business itself is not taxed. Each shareholder is responsible for paying taxes on their pro rata share of the S corporation's items of income, deductions, and credits (through a Schedule K-1 form).
California state law follows federal law for income tax purposes. Therefore if a corporation is classified as an association taxable as a S Corporation for federal income tax purposes, so will it be taxable as a corporation for state tax purposes.
Federal Income Tax: An S Corporation does not pay federal income tax.
California State Income Tax: A California S Corporation must file a California Form 100S, the California S Corporation Income Tax Return. Under California law, the S Corporation is subject to a 1.5% tax on its' net income and is a conduit similar to a partnership.
Federal Tax Identification Number: Your corporation will need to obtain a federal tax identification number, which is also known as an Employment Identification Number (EIN). You do not need to get a new EIN after the corporation choose to become a S Corporation. An EIN is similar to an individual's social security number. You will need an EIN for your S Corporation as long as there is one member, even if the S Corporation does not have employees. For certain tax filing requirements the attorney you choose on UpCounsel can help prepare your Federal Tax ID Application, if you have not done so already.
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