California S Corporation Formation

While S corporation status is obtained from the IRS, the initial setup of your California S corporation is done with the California Secretary of State's Business Division in Sacramento; your California Articles of Incorporation will be submitted to the Business Division and returned to you filed and stamped with a corporate seal. This is all done pursuant to the General Corporation Law, California Corporations Code, Title 1, Division 1, Chapter 2.

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Steps to Forming a California S Corporation

The following information must be included in your Articles of Incorporation:

  • Name: You will include you name, along with any corporate ending or its abbreviate you care to use, in the Articles. That name must be distinguishable from any other corporate names currently on file with the state; can perform a preliminary business name search so that you can be aware of any potential conflict ahead of time. California does not strictly require the use of a corporate ending.
  • Purpose: California allows you to specify your business purpose further than the general business statement, but either way, at least the following must be included: "The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code."
  • Registered agent: You will list either an individual or an already-incorporated entity (not the entity being forms by these Articles) that will act as the contact for your S corporation. A physical address for the registered agent must be listed—PO boxes cannot be accepted on their own.
  • Shares: You must list the amount of shares, which must be at least one, that your corporation is authorized to issue.
  • Execution: The person who drafted the Articles of Incorporation must sign them before filing them.

If anything set forth in the Articles of Incorporation changes, you will need to file an amendment to those Articles with the state. If you do not, California will not have the most recent information on file for you, and they may be unable to contact you with renewal reminders and they may impose fees or other penalties. can prepare and file your S Corporation in California formation documents for you. Or, you can review Sample California Articles of Incorporation

Further Responsibilities of a California S Corporation

California corporations must file an initial Statement of Information with the Business Division of the Secretary of State, located in Sacramento, after filing (no later than 90 days). Additionally, you will file an annual Statement of Information each subsequent year. Failure to comply with these requirements will result in substantial late fees.

After your Articles of Incorporation have been filed, you have 75 days to file an S Corp Election Form (form 2553) with the IRS. This form will give you S Corporation status and allow you to be taxed accordingly.

More Information about a California S Corporation

Your S corporation:

  • Can have up to 100 owners/shareholders, but no more
  • May deduct the cost of benefits provided to employers (such as parking permits, health insurance, and so on)
  • Has a board of directors, which oversees the policies of the corporation
  • Cannot have more than one class of shares
  • Issues limited liability for owners
  • Must be owned by US citizens or resident aliens
  • Is taxed as owners’ income, not as a separate entity
  • Allows business losses to be deducted on the owners’ individual tax returns
  • Must pay payroll tax

For S corporations, only the salary paid to the owner-employee is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, an owner of an S corporation stands to realize substantial employment tax savings. However, the salary you give yourself must not be artificially low; if the IRS finds your salary unreasonable, they may reclassify some of the distribution funds as salary and require you to pay taxes on it.

Other Types of Businesses in California

For information on other types of businesses in California, please explore the links below.

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