Key Takeaways

  • An S Corporation California is a standard corporation or LLC that elects S Corp tax status with the IRS for pass-through taxation benefits.
  • Business owners must first form a general corporation under California law before electing S Corp status using IRS Form 2553.
  • The California Franchise Tax Board (FTB) requires every S Corp to file Form 100S and pay the $800 minimum franchise tax plus a 1.5% income tax.
  • Compliance includes filing the Statement of Information (Form SI-550), maintaining bylaws, holding annual meetings, and keeping accurate records.
  • California law under Assembly Bill 3075 (AB 3075) expands Statement of Information disclosures related to labor law violations.
  • While S Corps offer liability protection, shareholders can lose this protection through personal guarantees, co-mingling funds, or fraudulent conduct.
  • Appointing a qualified registered agent and maintaining separation between personal and business finances are key to preserving liability protections.

S Corporation California

An S corporation California isn't an actual corporation but a tax status. Any corporation can elect to be taxed as an S corporation after forming. The rules that govern LLCs and for-profit companies are the same rules that govern an S corporation in California.

How to Form a Corporation in California 

To form an S corporation California, you'll need to first establish your business name. Choose a unique name that is not listed within the records of the California Secretary of State. You cannot select a name that is already in use or a name that's very much like another. You may need to choose a name that includes:

  • Corporation
  • Limited
  • Incorporated.

You also have the option simply to add the abbreviation to your business name.

The next portion of forming your corporation must be done by mail and cannot be completed online. Mail a Name Availability Inquiry Letter to check the availability of your name. This is a free service that the California Secretary of State's office performs. In the event that your business name is available, you can reserve it for 60 days. File a Name Reservation Request Form to the same office. 

For the form to be accepted, send it by mail or in person along with the $10 fee. To form your corporation, the Articles of Incorporation must be filed with the California Secretary of State. The details of this filing include:

  • The name of your business
  • Its purpose
  • The name of an agent 
  • A non-P.O. box address of the agent.

You'll also need to include the number of shares the corporation has authorized. The Articles of Incorporation you file must include your business street address and the mailing address. 

Steps for Setting Up an S Corp in California

When setting up an S Corp in California, business owners must first form a general corporation and then elect S Corp tax status with the IRS. The process typically involves these key steps:

  1. Choose and Reserve a Business Name:
    Verify availability using the California Secretary of State Business Search. Names must include “Corporation,” “Incorporated,” “Company,” or an abbreviation like “Inc.” or “Co.”
  2. Appoint a Registered Agent:
    The agent must be a California resident or a registered corporate agent authorized to accept service of process on behalf of the company.
  3. File Articles of Incorporation:
    Submit Form ARTS-GS with the Secretary of State, including the corporate name, business address, number of shares, and registered agent details. This filing costs $100 if submitted by mail or in person.
  4. Create Corporate Bylaws:
    Although not filed with the state, bylaws establish internal rules on management, meetings, and decision-making procedures.
  5. Hold an Organizational Meeting:
    During this meeting, the board of directors adopts bylaws, appoints officers, and authorizes the S Corp election.
  6. Obtain an Employer Identification Number (EIN):
    Apply online with the IRS to identify your business for tax purposes and open a corporate bank account.
  7. File IRS Form 2553:
    To elect S Corp status, submit Form 2553 (Election by a Small Business Corporation) to the IRS within 2 months and 15 days after incorporation or the start of the tax year.
  8. Register with the California Franchise Tax Board:
    File Form 100S (California S Corporation Franchise or Income Tax Return) and pay the $800 minimum franchise tax plus 1.5% of net income.
  9. Obtain Required State Licenses and Permits:
    Depending on the industry, apply for relevant permits through the CalGold Permit Assistance Tool.
  10. File the Statement of Information:
    Within 90 days of filing the Articles of Incorporation, file Form SI-550 with the Secretary of State, providing the names and addresses of officers, directors, and the agent for service of process.

California Statement of Information and Compliance Updates

Under California law, every newly formed corporation—including those electing S Corporation status—must file an initial Statement of Information (Form SI-550) with the Secretary of State within 90 days of incorporation. This filing discloses the business’s principal address, officers, directors, and agent for service of process. After the first filing, corporations must submit updates annually to remain in good standing.

In 2020, Assembly Bill 3075 (AB 3075) expanded the reporting requirements for corporations doing business in California. The law requires corporations to disclose whether any officers, directors, or managing members have outstanding judgments for wage or labor violations. This amendment strengthens the state’s enforcement of labor laws and affects both existing and newly formed corporations.

Failure to file timely Statements of Information can result in penalties, suspension, or forfeiture of corporate status under the California Corporations Code. To stay compliant, business owners should track filing deadlines carefully or engage a registered agent to manage compliance reminders.

Hiring an Agent to Form Your Corporation 

File the articles in person or by mail with the $100 filing fee included. Since your corporation is in California, you are required to have an agent for service process located in the state. The agent may be a corporation or individual. This agent will accept legal documentation in the event you are sued. The agent must agree to accept service of process on behalf of your corporation. 

Your corporation cannot serve as its own agent for service of process. The agent must agree to accept service of process before the designation. The agent can be a corporate agent who has already filed a certificate pursuant to Section 1505 of the California Corporations Code. 

This certificate is filed with the Secretary of State. The agent can also be an individual who simply lives in California. The agent is required to have a physical street address. When selecting an initial agent, most small corporations choose an officer or director of the company. 

Maintaining Corporate Formalities and Liability Protection

One of the biggest advantages of forming an S Corporation California is limited personal liability. Shareholders generally aren’t personally responsible for business debts or legal obligations. However, liability protection can be compromised if corporate formalities aren’t properly maintained.

To preserve liability protection, S Corporations should:

  • Maintain separate business and personal bank accounts.
  • Document board meetings, shareholder decisions, and bylaws.
  • Avoid personal guarantees on business loans when possible.
  • Ensure all contracts, leases, and financial accounts are signed under the corporation’s name, not individual names.

Courts can pierce the corporate veil if the S Corp is used to commit fraud or if shareholders treat the corporation as an extension of their personal finances. Therefore, observing record-keeping standards and legal formalities is critical to upholding liability protection.

S Corporation Eligibility and Shareholder Requirements

Not all corporations qualify for S Corp status. The IRS and the State of California impose strict eligibility criteria. To maintain S Corp status:

  • The corporation must be domestic and formed under California or another U.S. state’s laws.
  • It may have no more than 100 shareholders.
  • All shareholders must be U.S. citizens or resident aliens—no partnerships, other corporations, or nonresident aliens may hold shares.
  • The company may issue only one class of stock (differences in voting rights are allowed, but not in profit distribution).
  • All shareholders must consent in writing to the S Corp election.

Violating these rules, such as by issuing preferred stock or admitting an ineligible shareholder, can result in automatic termination of S Corp status.

Common Shareholder Issues in California S Corporations

California S Corporations must strictly comply with federal and state shareholder rules. Even minor violations—such as issuing multiple classes of stock or allowing ineligible shareholders—can cause automatic termination of S Corp status.

Common shareholder compliance issues include:

  • Ownership changes without updating the IRS election.
  • Nonresident alien shareholders, which disqualify the S Corp.
  • Unequal profit distributions, which violate the “single class of stock” rule.
  • Failure to obtain written consent from all shareholders when electing S status.

If S Corp status is revoked, the entity automatically reverts to C Corporation tax treatment, resulting in double taxation. California S Corps should review shareholder agreements annually and consult a tax professional to confirm ongoing eligibility.

Forming a California S Corporation?

An S corporation is not a type of corporation in itself; it is a tax status. Regular corporations, partnerships, and LLCs can file Form 8832 with the IRS to be taxed as an S corporation. This Form is an Entity Classification Election. The rules that govern the formation of an LLC or Limited Liability Company or any for-profit corporation are the same. After the formation of the corporation, the election to be treated as an S corporation is filed with the IRS. 

A California S-Corp is also known as a CA S-Corp. When choosing the name for your California S-Corp, be sure the name is available. The name itself must indicate the status of corporation by including “Inc.” or “Incorporated” as a suffix. You'll have to file a document or charter referred to as Articles of Incorporation or AOI, detailing the main information or rules of the corporation.

California S Corp Tax Responsibilities and Deadlines

California treats S Corporations as pass-through entities for federal income tax purposes but still imposes state-level taxes. Here’s what owners should know:

  • Franchise Tax: Every S Corp must pay an annual minimum franchise tax of $800, even if it operates at a loss.
  • Income Tax Rate: In addition to the minimum tax, S Corps pay a 1.5% tax on net income earned in or sourced from California.
  • Filing Deadlines:
    • Form 100S (S Corporation Franchise or Income Tax Return) is due by the 15th day of the third month following the close of the fiscal year (typically March 15 for calendar-year filers).
    • Extensions are available, but taxes must still be paid by the original due date.
  • Estimated Tax Payments: If an S Corp expects to owe more than $500 in franchise tax, it must make quarterly estimated payments.
  • Shareholder Taxes: Profits and losses flow through to shareholders, who report them on their personal state and federal tax returns.

Failure to pay on time can result in penalties and interest from the California Franchise Tax Board.

California Franchise Tax Board Enforcement and Penalties

The California Franchise Tax Board (FTB) strictly enforces S Corp tax obligations. Late or incomplete filings of Form 100S can result in penalties of up to 5% per month on unpaid tax, plus interest. Additionally, S Corps that fail to pay the annual $800 franchise tax risk suspension or forfeiture of corporate rights under the Revenue and Taxation Code §§23301–23305.

Even if an S Corporation is inactive or reports zero income, it must still pay the $800 minimum tax unless formally dissolved with the Secretary of State and FTB. To dissolve properly, the S Corp must:

  1. File a final Form 100S with the “Final Return” box checked.
  2. Submit Articles of Dissolution to the Secretary of State.
  3. Obtain written tax clearance from the FTB, confirming all obligations are paid.

Failure to follow dissolution procedures can cause ongoing tax liabilities and penalties.

California Tax Treatment of S Corporations

A major leverage point of an S corporation is that federal income tax applies to the shareholder's returns rather than taxing the corporation — this entity is treated as a pass-through. All S corporations doing business in California or sourcing their income from California are required to file an Income Tax Return or California S Corporation Franchise, also known as Form 100S, by the 15th day of the third month following the close of the corporation's tax year. All S corporations that do business in California or that are incorporated in California must pay an $800 franchise tax.

Note that if a corporation has more than one class of shares, the corporation cannot elect to be an S corporation. Your Articles of Incorporation are restricted to one class of stock. There are further restrictions on the shareholder type and the number of shareholders.

Common Mistakes to Avoid When Setting Up a California S Corp

Many small business owners make avoidable mistakes when forming and maintaining their S Corporations in California. To ensure compliance:

  • Do not miss the S Corp election deadline: Failing to file IRS Form 2553 on time may result in being taxed as a C corporation.
  • Avoid commingling personal and business funds: Maintain separate business bank accounts and financial records.
  • Pay reasonable shareholder salaries: The IRS requires owner-employees to receive a “reasonable” salary before taking distributions.
  • Keep accurate meeting minutes and records: Document all board decisions and shareholder votes to maintain corporate protection.
  • Stay compliant with annual filings: File the Statement of Information (Form SI-550) and pay annual franchise taxes to remain in good standing.

Proactively managing compliance reduces audit risk and preserves limited liability protections for shareholders.

Best Practices for Long-Term Compliance and Governance

To maintain good standing and reduce legal risk, S Corporations in California should adopt proactive compliance practices:

  • Schedule annual meetings and document decisions in corporate minutes.
  • Renew business licenses and file required state and local permits.
  • Track filing deadlines for Statements of Information and tax returns.
  • Use accounting software to separate payroll, distributions, and expenses clearly.
  • Conduct regular internal audits to verify that distributions align with shareholder ownership percentages.

Implementing strong governance practices not only satisfies California’s corporate law but also reassures investors, lenders, and partners of the company’s stability and compliance culture.

Frequently Asked Questions

  1. What is required to maintain S Corporation status in California?
    To maintain S Corp status, you must follow corporate formalities, file annual Statements of Information, submit Form 100S with the FTB, and ensure shareholder eligibility rules are continuously met.
  2. Do I still need to pay the $800 tax if my S Corp has no income?
    Yes. All California S Corporations must pay the $800 minimum franchise tax annually, even if they generate no income, until they are formally dissolved with the Secretary of State and FTB.
  3. How does an S Corp in California protect personal assets?
    S Corps provide liability protection separating business debts from personal assets. However, protection can be lost if owners commingle funds, commit fraud, or fail to follow corporate formalities.
  4. What happens if I miss my Statement of Information filing?
    Late filings may lead to penalties, suspension, or administrative dissolution under the Corporations Code. AB 3075 also requires new disclosures related to labor law violations.
  5.  Can a California LLC elect to be taxed as an S Corporation?
    Yes. A California LLC can file IRS Form 2553 to elect S Corp taxation if it meets shareholder eligibility requirements, allowing pass-through taxation while retaining LLC flexibility.

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