California, home to Hollywood, Disneyland, and Yosemite National Park is also home to Port of Los Angeles, one of the top five busiest trading port in the United States. Notably, the cross-border transactions between China and California topped USD$175 million in 2019, making the Chinese country its largest trading partner.
Businesses have been attracted to setting up their companies in the city due to a large number of Chinese enclaves, Mandarin is used fluently in California. Coupled with factors such as ease of naming companies, a wider variety of entity types available for set up and enhancement to a brand’s credibility (corporate prestige).
Requirements for company registration In California
The following are the requirements required for the registration of a company in California.
1. Naming of Company
The first step in company registration is to provide three corporate names. Generally, the types of entities accepted include funds, organisations, and colleges. Some pointers to take note with regard to the company names are that the name has to be in accordance with your business nature and it should also avoid names that existing corporates are already using.
2. Authorised Shares
There is no minimum or a maximum number of authorised shares as state California incorporation fees are not based on the share structure.
3. Directors’ Requirements
A corporation must have at least three directors. In a situation where there are less than three shareholders, the number of directors may be equal to or greater than the number of shareholders.
For example, if the corporation has only one shareholder, the number of directors maybe one or two. If the corporation has two shareholders, the number of directors may be two (or three, which is the minimum requirement).
There is no minimum age or residency requirement for directors however, either the articles of incorporation or the corporation’s bylaws must state the number of directors that will constitute the corporation’s board of directors. A shareholder can also be a director.
4. Registered Agent and Address
It is mandatory for a California corporation to maintain a registered agent and office to receive service of process in California. California registered agent should be available at a California physical address, during normal business hours to accept important legal and tax documents on behalf of the California corporation.
The registered agent can either be (1) an individual with a physical California address or (2) a corporation authorised to serve as a registered agent that complies with California Corporations law. A corporation cannot act as its own agent.
Procedure of company incorporation in California
1. Corporation Name
The process from the submission to the approval of the corporate name can be relatively fast should the name meets all the requirements.
2. Types of Business Structure
There are various types of entities for businesses to choose from and depending on the selected entity, the business structure and taxation defers accordingly. More popular entity types include:
- Limited Liability Company (LLC)
- Sole Proprietorship
3. Required documents for incorporation
Basic documents include:
- Scanned copies of ID cards or passports of the company’s shareholders
- Scanned copies of ID cards or passports of the company’s directors
- Sample of the chairman’s signature
- Share confirmation ratio
- Company job arrangement
4. Time required for application
The time taken for application approval ranges about 20 working days except for Limited Liability Company (LLC) which can take up to a month.
5. Items received after the application approval
After the approval of the application, the company will receive the following items:
1. Company certificates
- Articles of association
- Meeting minutes
- Agency certificates
- Company seal
6. Annual review
An annual inspection is required for California companies after one year of registration. Thus, the annual inspection will occur before the second year of registration. During the inspection, the California Annual Report which is commonly known as the “Statement of Information” must be filed by businesses to the authorities.
Tax Filing in California for Company Incorporation
In California, the companies adopt a pre-payment system when filing tax returns, that is, the basic tax is paid in advance when the company is registered. California companies need to file their tax returns yearly.
If the company does not conduct business activities in the United States, California limited companies (non-LLCs) will not have to pay income tax. However, the business will still need to pay a franchise tax. Specific tax bills of the government will also be applicable (Business activities are subject to sales tax and franchise tax).
The California tax system is administered and levied by different levels of state and county government units. Figure 1 illustrates the main tax categories.
Besides the requirements and procedure mentioned above, there are many more subtleties in this complex process of forming a corporation. Most of the time, companies get into legal problems or encounter difficult issues later in the business due to errors and details that were overlooked during the formation stage. Therefore, it is advisable to seek the help of an expert when forming a professional corporation in California to prevent these avoidable difficulties.
At Desfran, our team of expert consultants is here to provide you with our professional expertise regarding company incorporation. Led by one of the world’s leading management teams, our experts draw on their wealth of knowledge to offer comprehensive management advice. We are aware of the latest developments and trends in the financial markets and are equipped to guide you to expand your business.
Request for a consultation with Desfran today.