How to Incorporate in California: Everything You Need to Know
Incorporating a business is a very wise decision towards securing a company and its assets. It lends credibility and legitimacy to any business. 9 min read
2. Choosing a Corporate Name
3. Incorporating Your Business
4. Other obligations
5. Federal Employer Identification Number (FEIN)
6. Authorizing the Number of Stocks to Issue
7. California Tax Requirements
8. How to Make a Patent
9. Getting a Patent on your Own
10. Filing a Patent with an Attorney
11. Filing a Patent Application
How to Incorporate in California
A very common question for California business owners is how to incorporate in California. Incorporating a business is a very wise decision towards securing a company and its assets. It lends credibility and legitimacy to any business. The business owner will have many decisions to make, like choosing a business name and securing the necessary business licenses and permits, but first, he must choose where to incorporate his business.
Incorporating in California is beneficial for many reasons, even if the business is not physically present in the state. The state has a thriving business economy and offers many businesses great benefits. Under California law, incorporating one’s business protects the business owner’s personal assets and legal liability while offering a great tax advantage. The decision to incorporate in California should be grounded in your business goals for your company, where you intend to do business and where you intend to bank.
One of the advantages of incorporating in California is due to flexibility in management the state allows. California only requires three corporate officer positions in filing (President, CFO and Secretary), and all three can be the same person. In addition, the shareholders are allowed to remain anonymous, as California only requires the corporation to disclose the director and any registered agents.
In addition, the corporate taxes in California are only about nine percent, and depending on what type of corporation, other significant incentives are available.
After you choose to incorporate in California, you must choose a business name. If the name you want is available, the next step is to file Articles of Incorporation. Before you can open your business, make sure all of the permits and licenses are obtained and you have a taxpayer ID number.
Choosing a Corporate Name
Choosing a name for your corporation is straightforward. It must be available in California and not substantially similar to another name. The name must also not be misleading. It is important that your target market is able to find you, understand the product you are offering and remember your company. If the corporation is a “close” corporation—one that does not publicly trade their shares—the name must include “corporation,” “limited,” “incorporated,” or some sort of abbreviation of those.
It is advised to check the state name database to prevent duplication of names. This can be done for free by sending the Name Availability Inquiry Letter to the California Secretary of State’s office in Sacramento. The request can include up to three names listed in the order in which you would like them to be checked.
If you chose a name and no other business has a similar name in the state, you can reserve it for sixty days. To reserve the name, you must fill out the Name Reservation Request Form. You can also request the federal government to protect your trademark. A trademark includes any logo, symbol, or design that identifies the company. By getting your trademark protected, you are allowed to sue anyone that uses it.
Incorporating Your Business
Once you have chosen the name of the company, you must create the Articles of Incorporation. This will include the names of the three directors if shares have been issued, and if not, the one or two directors. If there is only one shareholder, then there can be one director. If there is two shareholders, there must be two directors. If there are three or more shareholders, there must be three directors.
Within ninety days of forming the corporation, you must fill out a Statement of Information each year. This statement will include the purpose of the corporation.
The incorporator is required to file a statement with all of the names and addresses of the directors and then keep it in the records book. This is an internal document and does not need to be filed with the Secretary of State.
- Corporation name and purpose
- Corporation’s address (street and mailing)
- Address of the corporation’s agent for service of process (cannot be a P.O. box)
- Amount of shares the corporation will be issuing
The filing fee is one hundred dollars and must be either physically sent to the Secretary of State or filed in person.
It is imperative that the corporate keep a records book where all of the formal papers of the business will be filed. This records book must typically be kept at the corporation’s headquarters or principal office.
A corporation’s bylaws are a set of rules the corporation agrees to follow. Bylaws are internal and help get the corporation operating. While not legally required to have bylaws, doing so helps the corporation's credibility and can help when trying to take out a loan, obtain credit, or other similar matters.
Once the Articles of Incorporation have been filed, the corporation must have its first board meeting.
At the first Board of Directors meeting, the directors should elect corporate officers, who basically act as agents of the corporation. They should also adopt the corporation’s bylaws, select a bank, and authorize the amount of shares they will issue. The corporation's fiscal year should also be set at this initial meeting, as well as the adoption of an official logo or seal. If the corporation is an S-corporation, the board members will need to adopt the election of S corporation status.
What happens at the meeting must be recorded as meeting minutes. Putting together a meeting’s minutes can sometimes take up to two weeks, but afterwards must be sent around to all of the board members for their approval and signature.
Federal Employer Identification Number (FEIN)
Every employer is required to obtain a Federal Employer Identification Number (FEIN) before the business can open a bank account, apply for a license, or file a tax return. While not all small businesses needs an FEIN, any employer with employees that operates as a corporation or partnership must obtain an FEIN.
If an owner of a business is not sure if it needs an FEIN, he can reach out to the IRS who will provide the answer. Typically, if a business reports on a personal tax return, the business is not required to have an FEIN since it can just use the social security number. However, if the company intends to report on a business tax return, it must obtain an FEIN.
If a company is required to have an FEIN, there are multiple ways in which to apply. It can obtain an FEIN by phone, by fax, by mail, or online. To apply by phone, the number is (800) 829-4933. To apply by fax or mail, an applicant will need to fill out the SS-4 form and locate the fax number and mailing address for the IRS location.
To apply online, an applicant can go to the IRS website. Here, he can fill the SS-4 form or participate in an “interview style” live chat with a representative that will request information from the owner and will issue an FEIN if it determines the business requires one.
Regardless of which method an applicant chooses, the company’s FEIN number won’t activate for two weeks.
Authorizing the Number of Stocks to Issue
The board of directors must issue stock to each and every shareholder. Most smaller corporations will usually issue physical stock certificates, although this is not required in most states. The corporation must keep a stock transfer ledger which includes the name and contact information for every shareholder.
Each stock of the corporation is categorized as a security under law that regulates the sale and offer of corporate stock. Small corporations are exempt from these laws and most states have passed their own types of SEC exemptions into law.
If you have any questions about California security law, you can visit the state’s securities office website.
California Tax Requirements
Each and every corporation conducting business in California is required to pay taxes to the state Franchise Tax Board. During each accounting period in the first quarter, the corporation is required to pay eight hundred dollars. This requirement applies regardless of the corporation is active, had a net loss, or no longer does business.
For new businesses, the franchise tax is calculated depending on their first year’s income and is subject to estimation. Income amounts of a certain level or higher will require the corporation to pay an additional fee based on their total yearly income. To find out about other details, you can visit California’s Franchise Tax Board website.
If you need help filing a corporation in California, you can post your legal need on UpCounsel’s marketplace.
How to Make a Patent
How to make a patent is answered by knowing how to obtain one. There are several ways you may obtain a patent. Patents are protections for someone’s intellectual property.
Getting a Patent on your Own
Getting a patent on your own can save a lot of money, maybe hundreds or even thousands on attorney’s fees. There is a long history of inventors navigating successfully the United States patent system on their own. The United States Patent and Trademark Office is required by federal law to assist inventors who, without an attorney, apply for patents. Learning to apply, successfully, for a patent isn’t a legal skill. It’s just like any other skill like cooking, carpentry or car repair. It can be learned. Obviously, it’s not easy (although some steps are quite easy to pick up).
The application process for a patent is an involved and long process. Knowing how to handle the patent application is just a matter of patience and disciplined study of the process. You can successfully acquire a patent if you are willing to take the patent application one step at a time.
Filing a Patent with an Attorney
Patent attorneys have to pass an additional bar. This means that they have been tested on their knowledge about patents and the steps to acquiring a patent. Obviously, these professionals are quite good at navigating the process of acquiring a patent. Cost savings are experienced because trained patent attorneys can help you avoid making mistakes that could be expensive later. An experienced attorney can make the application process much simpler for the inventor.
Filing a Patent Application
Following the rules set out by the United States Patent and Trademark Office can be compared to the instructions you would follow when making a new recipe out of a cookbook. Patent attorneys are like master chefs, they meet the criteria set out to be admitted to the patent bar. This mean these attorneys have passed the patent bar exam and completed an undergraduate degree in a related field (science or engineering for example) and a law degree. If you visit a patent clinic at a law school you will be able to ask questions relating to patent law (this is a benefit to the law students who gain valuable experience).
The government in the United States provides help to inventors as a way to help both individuals and innovation. The United States Patent and Trade Office Pro Se Assistance program is designed to help inventors get their patents filed. This program will even assemble all the documents in order to file for a patent.
If you do a rudimentary search online you will find numerous sites offering patent assistance for a fee. If you aren’t careful they will take your money and leave you with nothing to show for it. Disturbingly, some scams will steal your invention idea. Be very careful when using a service that doesn’t include someone admitted to the patent bar.
The three types of patents are utility, plant or design patents. You will need to determine which time of patent you will need so that you can be as efficient as possible with your patent application. Your strategy for filing your application depends on whether you need protection immediately for the invention or whether you are ready to make your more formal patent claim.
A specification will need to be prepared. This includes the following:
- An Abstract
- A Background
- A Summary
- A Detailed Description
- A Conclusion (which would include scope and ramifications)
Another step is determining the legal scope of your invention. An experienced patent attorney is a good idea unless you have 100 percent certain that you have the experience and skills to handle this task. After you have completed and reviewed your application, double check it so that it will not have unnecessary mistakes for which it may be rejected. The processing of a patent application takes between 1 and 3 years. A patent application can be filled by fax or mail but you can go to the USPTO website and file it online. The USPTO’s website also includes the most up-to-date filing resources and what is expected of an application.
If you need help with filing with the United States Patent and Trademark Office or any other legal need, 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 School and Yale Law School and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.