Updated November 23, 2020:

The cost to incorporate in California may be different than the cost to incorporate in other states. Since these costs vary, it's important to conduct careful research. Generally, if you only plan to do business in one state, it's best to incorporate in that state. 

However, if you'd like to incorporate in a state other than the one you reside in, you'll want to research the tax rate in that state versus the cost to incorporate in your own state. It's also important to research corporate laws as they pertain to your shareholders, officers, directors, and creditors. 

Why Incorporate?

It's important to incorporate your company because it will protect your personal assets. Incorporation also displays an air of professionalism, increasing the odds people will want to do business with you. In California, you can incorporate domestic stock, non-profit, professional, and foreign corporations. 

Many entrepreneurs are choosing to incorporate their businesses because they know it increases the likelihood they'll attract investors. It also decreases the likelihood of liability exposure. This may protect interested parties from lawsuits, pose new tax benefits, and promote confidentiality. 

California has the highest number of individuals filing self-employment tax returns. It also has the highest number of limited liability companies and the third-highest number of corporations. With numbers like this, it's plain to see that incorporating your business will help you develop a competitive brand that attracts smart investors. 

Incorporating in California

When choosing to incorporate in California, you should ask yourself a couple of questions.

  • What are your business goals?
  • Where will you conduct business?
  • Where will you bank?

If you plan to bank and do business in California, then the decision is fairly easy. This is a wise decision for all the obvious reasons. However, it's also worth mentioning that many states, including California, are becoming more diligent in their investigations into a corporation's transaction history. 

If all your business is conducted in one state, yet you're incorporated in another state, you may raise a few red flags. Some business owners choose to incorporate in states that aren't strictly regulated or have lower tax rates. However, states like California are becoming more aware of the tax revenue they're giving away to foreign entities, prompting deeper dives into incorporated entities. 

Articles of Incorporation

Throughout this process, you'll need to complete the articles of incorporation. When forming a business in California, your articles of incorporation, as well as a minimum of two copies, must be submitted to your Secretary of State Branch Office. The Secretary of State will certify two copies of your articles of incorporation for no fee. Additional copies can be submitted for an $8 certified copy fee. 

According to California law, you'll be required to appoint three directors to your corporation, unless you decide not to issue any shares. If that's the case, then you only have to select one or two directors. If you only have one shareholder, there can only be one director. If you have two shareholders, then you'll need two directors. Three shareholders will require three directors, and so forth. 

Other Requirements

Along with the articles of incorporation, you'll be required to file a few more documents. Some of the important ones include:

  • A statement of incorporation, to be filed within 90 days of incorporation
  • A broad corporate purpose, leaving your business open to pursue other avenues
  • A registered agent who will accept legal filings on behalf of the company
  • A Federal Employer Identification Number (FEIN) 
  • A bank account
  • Business licenses from the city or county where you plan to operate

Fees

In California, there are various fees associated with the process of incorporation. Reserving a name for your company comes with a fee, payable to the city or county. This fee varies, depending on where you file. 

To file the articles of incorporation, you'll have to pay $100, in addition to a $15 handling fee. You'll also be asked to file an initial report, detailing information about your company, which comes with a $25 fee, as well as a $75 service fee. Every year, you'll be expected to file an annual report, along with a $25 filing fee.

If you need help with the cost to incorporate in California, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.