California Corporation Laws

A corporation is a large company or group of companies authorized to act as a single entity and recognized as such in law. Corporations enjoy most of the rights and responsibilities that individuals possess. Corporations can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

California laws allow businesses to incorporate, provided they properly follow the requirements set out by the Secretary of State. There are several advantages of incorporating a business under California law;

  1. Business owners are protected from legal liability. To maintain the limited liability, however, the owners must follow a number of legally required corporate formalities.
  2. The corporation’s ability to issue stock is a strong selling point for those willing to invest capital in the business.
  3. Corporations have established power and management structures and clearly defines the roles and responsibilities of each group.

Despite the many advantages of forming a corporation, there are a few potential drawbacks of incorporating a business. The incorporation process can be expensive and time-consuming due to the number of documents that must be prepared. Corporations are required to strictly observe a number of corporate formalities. Profits earned by traditional corporations may be “double-taxed.” However, this problem can be avoided by electing “S” corporation tax status.

One or more natural persons, partnerships, associations, or corporations may form a corporation under California corporate laws (California Code – Division 1) by executing and filing articles of incorporation. Directors who are named in the articles must sign and acknowledge the articles.

Articles of incorporations states;

  1. The name of the corporation
  2. The purpose of the corporation
  3. The name and street address in this state of the corporation’s initial agent for service of process
  4. The initial street address of the corporation and the initial mailing address of the corporation
  5. The total number of shares the corporation is authorized to issue.

The name of the corporation must contain the word “corporation,” “incorporated,” or “limited” or an abbreviation of any of these words.

A filing fee must be paid to the secretary of state in order to file the forms. These fees are posted online and are subject to change.

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