California Corporation San Diego Details

Overview

A California corporation is a limited liability entity in which the business owners, called shareholders, are not responsible for business debts, liabilities, or other obligations.

Restrictions

One or more natural persons, partnerships, associations, or domestic or foreign corporations may form a California C Corporation. California Corporations Code § 200(a).

Formation

A California corporation is formed by filing articles of incorporation with the Secretary of State. California Corporations Code § 200(c). The filing fee for articles of incorporation is currently $100.00. California Government Code § 12186(c). Bylaws, which dictate how the corporation operates, must be adopted.

Shareholders (owners of a California corporation) may enter into an optional, separate agreement restricting the sale or transfer of shares of the corporation’s stock, a formula for determining the value of shares upon transfer, voting provisions, and other clauses.

Personal Liability

The shareholder of a California corporation is not liable for the debts and obligations of the California corporation, unless: (1) the shareholder personally guarantees a debt or obligation; (2) the shareholder engages in tortious conduct; (3) the shareholder receives improper distributions of the California corporation’s assets; (4) the shareholder intermingles personal and corporate matters (alter ego; piercing the corporate veil); or (5) the shareholder breaches a duty owed to other shareholders.

A shareholder who acts as a director and/or officer of a California corporation may have increased liability stemming from his or her actions as a director and/or officer.

Anonymity

The names of California corporation shareholders are not a matter of public record. However, other shareholders of the California corporation have the right to inspect the books and records of the corporation, thereby learning the names of fellow shareholders.

The names of officers and directors of a California corporation are a matter of public record.

Management

Unless otherwise named in the articles of incorporation, the incorporators appoint the initial directors of a California corporation. California Corporations Code § 210. After shares of stock in the California corporation have been issued, the shareholders vote annually to elect a board of directors, and the elected directors then elect officers to handle the day-to-day management of corporate operations. A California corporation must have a president, a secretary, and a treasurer/chief financial officer. Other officers may also be elected in addition to the three required.

Shareholders exercise no management in a California corporation. When shareholders do exercise control of management, the corporation risks losing its limited liability protection.

Capitalization

California corporation shareholders contribute assets to the corporation in exchange for shares of stock. If the assets contributed are non-cash, the fair market value of the assets establishes the price of the stock.

A California corporation may issue one or more classes of stock. Different classes of stock may have different voting rights, preferences, privileges and restrictions, as stated in the articles of incorporation. At least one class of stock must have voting rights and unlimited dividend and liquidation rights. California Corporations Code § 400(a).

Securities Issues

Shares of stock in a California corporation are usually characterized as securities.

Federal Securities Issues

Federal securities laws should be considered when issuing stock in a California corporation. Regulatory filings may be required either to qualify an offering and sale or to receive an exemption. California Corporations Code §§ 25000-25707; 10 California Code of Regulations §§ 250.9-260.617.

California Securities Issues

All offers and sales of securities in California require qualification with the California Department of Business Oversight unless either the transaction or the security itself is exempted from qualification. The securities laws of other states may also apply to offers or sales of stock made outside California.

Other State Securities Issues

The securities laws of other states (“blue sky” laws) may also apply to offers or sales of California corporation stock made outside California.

Taxation

The net income of a California corporation is taxable by both the federal and state governments at corporate tax rates.

If the California corporation distributes dividends to shareholders, the shareholders must report the dividends received as income. This dividend income will be subject to both federal and state income taxes. Taxation of dividends is commonly referred to as “double taxation” because the corporation’s net income is taxed twice: first at the corporate level and again if distributed as dividends to the shareholders. Dividend payments made to shareholders are not treated as an expense of the corporation.

Double taxation may be minimized by the payment of wages to shareholder-employees, by payment of fair market rent or royalties of assets owned by shareholders, or by payment of fair market interest on a debt owed to shareholders.

A California corporation that retains most of its income as capital reinvestment in the business may benefit from the corporate tax structure because the marginal rates applicable to corporations may be lower than the marginal rates applicable to individuals.

California corporations must pay a minimum annual franchise tax of $800 to the State of California’s Franchise Tax Board for the privilege of doing business as a limited liability entity.

Employment taxes and workers’ compensation insurance must be paid on employees’ wages.

Ownership Changes

If not restricted by shareholder agreements or securities law requirements, a shareholder can readily transfer stock to a new owner.

Change of ownership does not dissolve or terminate a corporation.

Termination

A California corporation can be dissolved by a vote of 50% or more of the voting power of the corporation’s shareholders and the subsequent filing of a certificate of election with the Secretary of State. California Corporations Code §§ 204(a)(4), 1900(a), 1901.

Pricing Assumptions

The organization of a California corporation for the pricing listed on this page assumes a single class of stock and the issuance to founders domiciled in California valued at US$25,000.00 or less. More complex organizations and share issuance available by quotation. Filings required by applicable federal and blue sky securities laws available for additional fees and with additional costs.