California is consistently ranked as having the largest economy in the United States and the inhabitants of the state also have a relatively high per-capita income. This overall purchasing power, along with California’s strong support of local and small business as means to further economic growth, makes this state an appealing choice for anyone starting a business.
Steps to Form a Corporation in California
International companies considering doing business in the United States must determine, among other important matters, the type of business entity that will be used to conduct business and the U.S. jurisdictions in which the company will register. The choice of company type (common types include corporation and limited liability company) and the jurisdictions in which it will register are controlled by legal, tax, and business factors unique to the company. Consulting with a professional advisor qualified to provide U.S. tax and legal advice is recommended.
If, after consulting with your U.S. legal and/or tax advisor, your business plan is to set up a Corporation in the State of California, you will need to complete and file the Articles of Incorporation of a General Stock Corporation containing:
Name of the Corporation
The first step is to choose the name of the corporation. No entity indicator is required by the California General Corporation Law (CGCL) for corporations. However, the CGCL states that a corporation’s name shall not be a name that the California Secretary of State deems likely to mislead the public and it should be distinguishable in the Secretary of State’s records.
Purpose of the Corporation
You may use a general-purpose clause in the Articles of Incorporation for your corporation (i.e., the purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organised under the CGCL other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code).
Stock Structure
Corporations are able to raise money through issuance of stock. In the Articles of Incorporation, you will need to state the number of shares that the corporation will have the authority to issue and must state whether the shares are with par value or without par value.
Business Address
Each corporation must provide an initial street address, which can’t be a post office box or a care of address. The initial street address can be outside the United States. A postal address for the corporation can also be provided (an international address is acceptable). The registered agent’s address may not be used as the business address.
Service of Process
The California Corporations Code requires that corporations designate an agent to receive legal documents and official correspondence in the State of California. The designated agent must have a physical street address in California. Typically, international clients will engage and name a professional registered agent company to provide the physical address for this purpose.
Finally, the Articles of Incorporation needs to be signed by one or more incorporators. This can be submitted in-person, by post or through an online filing system. Note that a professional service company can help you with this filing.
Licences and Permits
Be aware that certain business activities in California may require special permits and licences from the state or local governments. It is highly recommended that you consult with an advisor on the licensing requirements to ensure you are fully compliant when you start doing business in California.
Incorporation or Qualification
As a company considering conducting business in the U.S., you have the option of setting up a new corporation in the State of California, independent of your non-U.S. entity (known as ‘incorporation’). Alternatively, you may decide to register or qualify your non-U.S. business entity in California (known as ‘qualification’). You can choose either route based on your business goals in the U.S. and the advice of your legal and/or tax advisors.
Other Considerations
If you are qualifying a non-U.S. entity to do business in California, you will need to provide details about your existing non-U.S. entity to show it is in good standing. For example, if a U.K. company wants to register to do business in California , they will have to show their business is in good standing in the U.K., in addition to filing the “Statement and Designation by Foreign Corporation”.
California requires all corporations to file a Statement of Information within 90 days after filing the Articles of Incorporation and every year thereafter to update or confirm the business address of the company setting out certain current details of the entity, such as name and address of officers and directors and address for the registered agent where legal process can be sent. The due date for filing the Statement of Information is the last day in the calendar month in which the original Articles of Incorporation or the Statement and Designation by Foreign Corporation was filed with the California Secretary of State.
Once the entity is incorporated or qualified, most corporations must pay a minimum tax of $800 to the California Franchise Tax Board each year. Corporations may also be subject to additional taxes. It is important to ensure that all income tax matters are attended to so that a corporation remains compliant and maintains its existence and good standing while conducting business in California.
If you need to know more about U.S. company formation and subsidiary management, click below to download our Corporate Services FAQ.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
