Forming an S Corp in California

(This article is part of a series. You may also want to read our guide How To Incorporate in California.)

Every corporation formed in California begins as a C corporation. To form a California S corporation requires forming a C corporation and then electing with the IRS to be taxed subject to Subchapter S of the Internal Revenue Code, which makes you an S corporation.

The S election exempts the corporation from federal taxation directly on its net income, and flows profit or loss untaxed to shareholders, who each then file their own taxes on their income. But note that California levies a state income tax of 1.5 percent directly on net corporate income, as well as individual income taxes.

Since most of the reasoning behind choosing an S corporation involves income and taxation, you should seek professional advice from an accountant and/or attorney to pursue this course, especially given California's income tax on the S corporation. Nothing in this article can be construed as legal, tax or accounting advice.

California S Corporation

Forming a California S corporation begins with forming a C corporation, which is done by filing Articles of Incorporation with the California Secretary of State. See our article, Forming a C Corporation in California for details on the full process.

To file the Articles of Incorporation you will need to choose one of the three share-issuing types of corporation. You'll need to supply the corporate address, contact information for the registered agent, your proposed company name, and quantity of shares authorized. Note that a California S corporation is constrained to a maximum of 100 shareholders.

Apart from filing the articles of incorporation, you'll also need to create a company bank account, apply for your Federal Tax ID (EIN) with the IRS, and hold your first formal meeting of the owners to adopt the bylaws, issue shares and appoint officers.

This meeting will also be your formal opportunity to vote to file Form 2553 with the IRS, which is your election to be treated as an S corporation. This election should be made within 45 days from incorporating. Note also that within 90 days you will file your first annual Statement of Information with California, supplying names of officers and directors.

Resources

You can learn much and examine sample forms at the State of California's website section dealing with business formation. The Forms, Samples and Fees page provides standard filing forms as well as instructions and tips.

These forms are the minimum required by the California Corporations Code, and may not fully serve your business architecture. You can change the default articles of incorporation, and also write customized bylaws, to better suit your business structure and needs. This is the time in your business life to seek professional advice from an attorney and an accountant.

An attorney is not required to incorporate, but the decisions on how you structure your company are yours to make, and typically you’ll put them into effect through professional consultation.

SunDoc Filings can help you with the tasks of filing your documents, saving you time and effort, and bringing a consistent reliability to your routine document filing requirements. Based in downtown Sacramento, we hand-deliver and pick up documents at the Secretary of State offices several times a day.

Follow these links to see how we can help you incorporate in California, conduct your all-important name search and name reservation, supply you with a California Corporate Kit with corporate documents, apply for your EIN on your behalf, and provide Registered Agent services for you.

You can accomplish all of your filings easily through this website, here at www.sundocumentfilings.com. To talk to a live voice for immediate assistance call us toll-free during business hours at 1-888-595-2747.