How to Register a Company
So you want to start a business? Below is a step-by-step playbook on how to register a new company in the state of California.
1. Determine Entity Type
The first step in registering a company is to determine the best entity type for your particular use. In general, there are four different entity types to select from. You can either register as a Corporation (Inc), Limited Liability Company (LLC), Partnership, or Sole Proprietorship. Limited Liability Companies and Corporations are the two most common entity types and below is side-by-side comparison showing the advantages of each. For the purposes of this article, we will be focusing on the formation of a Corporation (Inc) in the State of California.
Limited Liability Company (LLC)
✓ Protects personal assets from business liability
✓ Separates business and personal finances
✓ Acceptable in all 50 states
✓ Highly flexible management structure
✓ Flexible tax reporting options
Corporation (Inc)
✓ Protects personal assets from business liability
✓ Separates business and personal finances
✓ Acceptable in all 50 states
✓ Preferred by outside investors
✓ Preferred for IPO
✓ Recognized outside of the United States
2. Name Check
Once you have determined the ideal entity type for your company, you need to select a name for your new venture. The California Secretary of State provides a free Name Search Tool, which you can use to perform a preliminary name search. This search tool provides access to the information on record for registered corporations, limited liability companies and limited partnerships.
To conduct a search:
Click Name Search Tool link above or click Here
Select the appropriate entity type and enter the entity name you wish to search.
Select the search filter you wish to use and click the search button.
3. Name Reservation (Optional)
After concluding which entity names are currently available, you should reserve the name in which you intend to register. A name can be reserved for a period of 60 days for a small fee. To reserve an entity name you must use the Name Reservation Request Form. The form must be completed and mailed in to the California Secretary of State, as email or online requests for name reservations are not accepted. A name reservation can be renewed to the same applicant, but not for consecutive 60-day periods as there must be at least one day between reservation periods.
4. Articles of incorporation
The articles of incorporation is the actual document that officially establishes a corporation as a legal business entity. The articles of incorporation provide important information about the corporation, including its name, contact information, and quantity of shares; all of which becomes public record upon successful filing. Each state has its form or template for the articles of incorporation, and can usually be found through the secretary of state.
To form a corporation in California, you must file Articles of Incorporation with the California Secretary of State. Form ARTS-GS can be used for ease of filing, however, any format that meets the requirements is acceptable.
5. Statement of Information
A Statement of Information form shows a company's owners/officers, business address, and business description. A Statement of Information (Form SI-550) must be filed with the California Secretary of State within 90 days after filing your Articles of Incorporation and must be perpetually updated every year or every two years based on entity type.
6. EIN Application
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States. Applying for an EIN is a free service offered by the IRS and may be completed online to get your EIN immediately. All EIN applications must disclose the name and Taxpayer Identification Number of the true principal officer, general partner, grantor, owner or trustor.
7. S Corp Election
As a corporation, you will be taxed by the Internal Revenue Service as either a C corporation or an S corporation. An S Corp election will be taxed by the federal government in the same manner as a sole proprietorship or general partnership. An S corp is considered a pass through entity as the corporation itself does not pay any tax, but the profits are passed on to the shareholders. The shareholders then report the income on their individual income tax returns. An S Corp election is completed using IRS Form 2553.
8. Franchise Tax Board Verification
Within several weeks of filing your Articles of Incorporation, you will likely receive an Address Verification Notice from the State of California Franchise Tax Board. This is a simple form and only requires a response if your address on file needs to be changed or modified. If the address indicated on the form is correct, no action is likely required.
9. Business Bank Account
Your corporation will need a bank account. Establishing a business bank account is important in creating separation between private and business finances and is critical for establishing liability protection. Additionally, checks payable to a corporation usually cannot be cashed by a shareholder and you will therefore need a business account for depositing purposes. All you should need to open a corporate bank account is a copy of your articles of incorporation, your federal tax identification number, proof of identification, and minimum account funds.
10. Business Licenses
After completing all of your corporation registration requirements, make sure to verify if you need to apply for any additional business licenses or permits that may apply to your particular industry.
Frequently Asked Questions
Can I start a business without creating a corporation or LLC?
You don't need a corporation or LLC to go into business. Many business owners are in partnerships or are sole proprietors. However, a corporation or LLC can shield you from liability and may offer tax advantages.
What are the main differences between an LLC and a sole proprietorship?
The biggest difference is that an LLC protects you from personal liability while a sole proprietorship doesn't. Also, you don't need to file any paperwork with the Secretary of State state to create a sole proprietorship, though you likely still need to obtain business permits, licenses, and an EIN number.
Can you help me register my business?
Starting a new business is no small undertaking and should be carefully considered. Although we have experience in establishing and working with many different types of companies, we are neither lawyers nor CPAs. Please consult with a legal and tax professional before registering a company.
Get registered and get off the ground as quickly as possible. Remember, if you want something bad enough you’ll figure out a way to make it work. Let me know how I can help you, and feel free to call or text at 805.900.3000.
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