Key Takeaways

  • Setting up an S Corp in California involves forming a corporation with the California Secretary of State and then electing S Corp tax status with the IRS.
  • California imposes both a minimum $800 franchise tax and a 1.5% income tax on S Corporations.
  • To qualify, the corporation must have 100 or fewer shareholders, one class of stock, and only eligible shareholders (U.S. citizens or residents).
  • After incorporation, businesses must obtain an EIN, file IRS Form 2553 for S Corp election, and register with the California Franchise Tax Board (FTB).
  • Maintaining S Corp status requires timely filings, accurate payroll and shareholder distributions, and annual tax compliance.

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.

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. 

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.

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 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.

Frequently Asked Questions

1. What are the eligibility requirements for an S Corp in California? Your business must be a domestic corporation with no more than 100 shareholders, only one class of stock, and all shareholders must be U.S. citizens or residents.

2. How much does it cost to form an S Corp in California? Expect to pay a $100 filing fee for the Articles of Incorporation, a $10 name reservation fee (optional), and an $800 annual franchise tax.

3. How long does it take to form an S Corp in California? It generally takes 2–4 weeks to form your corporation and receive state approval. Filing Form 2553 with the IRS can add additional time for S Corp election approval.

4. Can I file my S Corp formation online? Yes, the California Secretary of State’s website allows online filing of Articles of Incorporation, but name reservations and some supporting forms may still need to be mailed.

5. What happens if my S Corp misses the tax filing deadline? Missing the deadline for Form 100S can result in penalties, interest, and possible suspension by the Franchise Tax Board. Timely filings are crucial for maintaining good standing.

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