California S-Corp San Diego
California S-Corp San Diego Summary
Operating a San Diego business as a California S-Corporation combines the strength and prestige of a corporation with S-Corp pass-through tax advantages. These benefits include:
• Limiting personal liability against claims from lawsuits and creditors;
• Raising capital from investors by issuing stock and/or bonds;
• Obtaining credit without making a personal guarantee;
• Increased business credibility derived from operating in the corporate form;
• Ability to offer stock options to workers;
• Reducing self-employment taxes for shareholders earning wages; and
• Passing through profits and losses to members, thus avoiding double taxation.
All California corporations formed by San Diego Corporate Law include attorney-drafted articles of incorporation, bylaws, federal EIN application, corporate records book, stock certificates, and minutes for the organizational meeting of the board of directors.
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California S-Corp San Diego Details
Under certain circumstances, shareholders of a California corporation may elect for taxation under Subchapter S of the Internal Revenue Code. Under this S-Corp election, corporate profits and losses are reported on the personal income tax filings of the shareholders. Corporations electing taxation under Subchapter S are generally referred to as S-Corporations or S-Corps.
A California S-Corporation must have only one class of stock, may have no more than 100 shareholders, all of whom must be United States citizens or legal United States residents, or certain trusts or estates, all of whom elect to report the profits and losses of the California S-Corp on the individual tax returns of the shareholders. Internal Revenue Code Subchapter S.
When a qualified trust is a shareholder of a California S-Corporation, each beneficiary of the trust is considered a separate California S-Corp shareholder. United States Treasury Regulation § 1.1361-1(e)(1).
Shareholders in a California S-Corporation with family relationships, whether owning shares directly or as qualified trust beneficiaries, may be treated as a single California S-Corp shareholder. United States Treasury Regulation § 1.1361-1(e)(3).
A California S-Corporation is formed by filing articles of incorporation with the Secretary of State. California Corporations Code C § 200(c). The filing fee for articles of incorporation is currently $100.00. California Government Code § 12186(c). Bylaws, which dictate how the California S-Corp will operate, must be adopted.
Shareholders (owners of a California S-Corp) may enter into an optional, separate agreement restricting the sale or transfer of the California S-Corporation stock, a formula for determining the value of shares upon transfer, voting provisions, and other clauses and restrictions.
In addition to the standard formation procedure of a California corporation, shareholders seeking to be treated as a California S-Corporation must file Internal Revenue Code Form 2553 with the Internal Revenue Service, commonly referred to as making the S-Corp election.
A shareholder of a California S-Corporation is not liable for the debts and obligations of the California S-Corp, 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 S-Corporation assets; (4) the shareholder intermingles personal and California S-Corp matters (alter ego; piercing the corporate veil); or (5) the shareholder breaches a duty owed to other shareholders.
A shareholder in a California S-Corporation who acts as a corporate director and/or officer of the California S-Corp may have increased liability stemming from his or her actions as a director and/or officer.
The names of shareholders in a California S-Corporation are not public record. However, other shareholders of a California S Corporation have the right to inspect the books and records of the California S-Corp, thereby learning the names of fellow shareholders.
The names officers and directors of a California S-Corp are a matter of public record.
Unless otherwise named in the articles of incorporation, the incorporator or incorporators of a California S-Corporation appoint the initial directors of the California S-Corp. California Corporations Code § 210. After shares of stock in the California S-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 operational management of the California S-Corp. A California S-Corporation must have a president, a corporate secretary, and a treasurer/chief financial officer. Other officers, such as one or more vice-presidents, may also be elected by the shareholders of a California S-Corp in addition to the three required officer positions.
Shareholders exercise no management in a California S-Corporation. When shareholders do exercise control of management, the California S-Corp risks losing its limited liability protection.
A California S-Corporation may issue only one class of stock. Shareholders contribute assets to the California S-Corp 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.
Shares of stock in a California S-Corp are usually characterized as securities, as are the shares of stock of California corporations other than a California S-Corporation.
Federal Securities Issues
Federal securities laws should be considered when issuing stock in a California S-Corporation.
California Securities Issues
All offers and sales of shares of stock in a California S-Corporation require qualification with the Commissioner of Corporations unless either the transaction or the security itself is exempted from qualification. California Corporations Code §§ 25000-25707; 10 California Code of Regulations §§ 250.9-260.617.
Other State Securities Issues
A California S-Corporation issuing shares of stock outside California should consider the securities laws of other states (“blue sky” laws) in which the California S-Corp stock may be offered or sold.
Net income, loss and tax credits of a California S-Corporation are not taxed at the corporate level and are instead “passed through” to the California S-Corp shareholders.
If not restricted by shareholder agreements or securities law requirements, a California S-Corp shareholder can readily transfer the stock of a California S-Corporation to a new owner.
Change of ownership does not dissolve or terminate a California S-Corporation.
A California S-Corporation can be dissolved by a vote of 50% or more of the voting power of the California S-Corp’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.
The organization of a California S-Corp for the pricing listed on this page assumes the issuance to founders domiciled in California valued at US$25,000.00 or less. Share issuance to founders domiciled outside California and/or valued in excess of US$25,000.00 available by quotation. Filings required by applicable federal and blue sky securities laws available for additional fees and with additional costs.