Start a Business in California

Whether you are following the EverEmployed program or going it on your own, many entrepreneurs choose to operate as an S-corp for a number of reasons. While we can’t offer legal advice, here are some general instructions and resources on setting up an S-corp in California.If you are still unsure of what an S-Corp is, refer to the article “What is an S-Corp?”  Once you are ready, here is the guide to getting started:

What’s in a Name?

The first, and probably most obvious step is selecting a name for your new company. The name says a lot about your business, and should be well thought out and not be misleading to the general public. It can not be the same as another company registered with the Secretary of State, or too similar to one in existence either. Your company name does not have to contain the words corporation, incorporated or limited. You may inquire about the availability of a name by filling out this form and mailing it to the Secretary of State office. Unfortunately, email requests are not accepted.

Let the Paperwork Begin…

Once you have selected the name of the company and are ready to become official, you must file an Article of Incorporation with the Secretary of State. This form lists the name of the company, company address, purpose of the business, and the number of shares the corporation will issue. This form will also ask for the name and address of an agent for service of process. According to California law, each corporation established must appoint either an individual or company with a physical California address (no PO Boxes) to accept legal papers on their behalf in the event they are ever involved in a lawsuit. Your company cannot act as its own agent. For more information on companies that can act as your agent for service of process, click here.

Within the first 90 days of filing your Articles of Incorporation, you must file a statement of information with the Secretary of State. This form will also be filed on a yearly basis to update the records regarding your corporation.

Finally, you will need to open a bank account specifically for the business. Keeping all business records and financials separate from your personal ones is required by the state.

Tax Requirements For S-Corps in California

Now that you have completed the paperwork to start a business in California, there are a few tax requirements you will want to be aware of. They are as follows:

• An S-Corp does not pay federal income tax. Instead, the income of the S-Corp flows to the shareholders who then pay taxes on their portion of  income received. This is done through a schedule K-1.
• California law subjects the S-Corp to a 1.5% tax on its’ net income
• Shareholders are not to be held liable for the losses of the business and creditors can only look to the assets of the corporation for payment
• Under civil law, S-Corps must pay an annual $800 franchise tax (minimum payment)

How Do I File?

S-Corps that do business in California are required to file form 100S, California S-Corporation Franchise or Income Tax Return.

You will need to provide each shareholder with a Schedule K-1 which details their portion of the business income. Estimated tax payments are made on a quarterly basis by completing Form 100-ES.

For more information on taxes for an S-Corp, or to find the above mentioned forms, please refer to the California Tax Franchise Board Website, and the IRS website.

Final Steps

Once you have completed the steps to starting a business in California, remember to get a business license with the city in which you are operating. Most cities pull data from newly-registered businesses in the state so they can track down who in their city should have a license. While you can wait for your city to come knocking if you are on a tight budget (and many will simply give you a deadline to obtain a license), some municipalities may not be so friendly about it.

Congratulations! You have officially set up your California S-Corp. Please refer to our “What Do I Do Next?”  article to learn how to proceed with your business.