FAQs About Forming a California Corporation
Starting your own San Diego business can be exciting, but can also generate a lot of questions. Among the most common questions that we get here at San Diego Corporate Law are questions about forming a corporation, whether to form a corporation, when to form a corporation, and the process involved. Here are answers to seven of our most popular FAQs.
Do I REALLY Need to Form a Corporation?
Honestly, the answer here is that it depends. The two main reasons to use a corporation are for tax efficiency and liability protection. Scheduling an initial consultation with our attorney, Michael Leonard, will provide an opportunity to review your personal situation and pro forma business plans and allow an experienced attorney to recommend the best form of doing business. Sometimes a corporation is the best fit, but sometimes our attorney will suggest you remain a well-insured sole proprietor if the corporate form is not the right fit for your industry or pro forma expectations of business revenue.
Why do I Need to Form a Corporation?
Because the corporation becomes a separate legal entity, forming a corporation protects your personal assets from being seized by creditors or if there is a lawsuit. Let’s say you are a baker and you make the best, most delicious cupcakes in San Diego. Now, imagine there is an accident — through no fault of your own — such as a fire. Imagine someone is injured in the fire and they file a lawsuit and obtain a $1 million judgment. Without a corporation established, your personal assets will be at risk to pay that judgment if your insurance does not cover the damage. If you have a family, that is not a risk you should take. If there is a corporation, only the assets of the corporation will be seized.
Are There Other Reasons to Form a Corporation?
Yes. Here is a quick list of some additional reasons:
- Ease of selling/transferring the business
- Credibility with consumers and vendors
- Access to certain vendors and suppliers — wholesale and warehousing vendors often only do business with customers who are incorporated and who have a business tax ID number
- Ability to avoid using personal identifiers when conducting business — for example: not having to use your personal social security number
- Tax and expensing advantages
- Establishing a distinct business credit rating
What is the Process?
You must choose a good name for your corporation — one that is not already in use. Then, with the help of your trusted San Diego corporate attorney, you file articles of incorporation (and other forms) with the California Secretary of State, draft and adopt bylaws, hold initial meeting of board of directors, securities filings for the issuance stock, and other necessary and advisable documents and filings.
Can I be the Sole Owner?
Yes, corporations are often formed and owned by only one person.
What is a Board of Directors?
Being a separate and different entity than natural persons, corporations have a legally-required structure. Corporations are run by their respective Boards of Directors. Boards can be composed of one person or dozens depending on the corporation. Often, with small corporation, the owners overlap with the directors. For example, if you are the only owner of the company, then likely you are also the only member of the Board of Directors.
Contact San Diego Corporate Law
For further information and for assistance with forming your San Diego corporation or limited liability company, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help you with corporate formation, can keep your corporation/LLC in good standing year after year, and can advise on various other business-related legal matters. Contact Mr. Leonard by email or by calling (858) 483-9200.