How to Set Up a Corporation in California: Filing, Stock, and Taxes

To set up a corporation in California, you file Articles of Incorporation with the Secretary of State and pay a $100 filing fee, then work through a defined set of follow-up steps: name clearance, appointing directors, adopting bylaws, issuing stock in compliance with securities law, choosing a tax treatment, and meeting the state’s early filing deadlines. Skip any of these and you can end up with penalties, personal liability, or a corporation that exists on paper but cannot legally operate.

Pick a Name That Clears the State’s Rules

Your corporate name has to be “distinguishable in the records” of the Secretary of State from every other entity already on file, and it cannot be “likely to mislead the public.”¹ Distinguishable is a low bar in one sense (a single different letter or number can be enough) and a high bar in another (differences in capitalization, accent marks, and font don’t count).² Search existing names through the Secretary of State’s bizfile Online portal before you commit.³

The name also needs a corporate designator: a word or abbreviation such as “Corporation,” “Incorporated,” “Corp.,” “Inc.,” or “Ltd.” that tells the public they’re dealing with a corporate entity.² If you’re not ready to file, you can submit a name reservation request through the Secretary of State’s office to hold it.

File the Articles of Incorporation

The Articles of Incorporation is the document that legally creates the corporation. For a general stock corporation, that’s Form ARTS-GS. California’s Corporations Code lays out exactly what the Articles must include, and leaving anything out gets the filing rejected.

The full corporate name, including the designator.
A statement of purpose. Most general corporations use a broad, standard statement that the purpose is to engage in any lawful activity rather than listing specific business lines.⁴
The name and California street address of the registered agent for service of process.
The initial street address of the corporation’s principal office.
The total number of authorized shares. If there is more than one class of stock, the Articles must describe each class, its designation, and the rights attached to it.⁴

Authorized shares are a ceiling, not a plan. Most founders authorize more shares than they intend to issue immediately, leaving room for future investors or employee stock grants without having to amend the Articles later.

Registered Agent Requirements

The registered agent receives lawsuits, subpoenas, and other legal notices for the corporation. California law requires the agent to be either a natural person who resides in California or a corporate agent that has filed a special certificate with the Secretary of State under Corporations Code Section 1505. The listed address has to be a complete California street address, because the statute specifically calls for a street address rather than a P.O. box.⁵

A founder or officer can serve as the agent, provided they live in California and are available at the listed address during business hours. Many corporations instead hire a commercial registered agent service, especially when the founders work from home or travel often.

How and Where to File

Submit the completed Articles to the Secretary of State. You have three options: file online through bizfile Online, mail the documents to the Sacramento office, or drop them off in person.³ The filing fee is $100.⁶ If you drop off the filing in person in Sacramento, there’s an additional $15 special handling fee per document, and that fee applies whether the filing is accepted or rejected.⁷

After processing, the Secretary of State provides one uncertified copy of the filed document at no charge. A certified copy, which serves as official proof the corporation exists and is often required to open bank accounts, costs $5 per document.⁸ Keep a copy with your corporate records either way.

Set the Corporation Up Internally

A filed Articles of Incorporation creates the legal entity, but that entity still needs internal structure before it can do anything. The person who signed the Articles (the incorporator) starts by appointing the initial board of directors in a written statement kept with the corporate records. Those directors serve until the first shareholder meeting.

The Organizational Meeting

The initial board holds an organizational meeting to make the foundational decisions. The most important action is adopting corporate bylaws, the internal rulebook that governs how meetings are called, how votes are counted, what powers officers have, and how the board itself operates. Bylaws can be amended later by the shareholders or, in many cases, by the board, but they can’t contradict the Articles of Incorporation or California law.

The board also elects the corporation’s officers. California doesn’t dictate specific officer titles, but most corporations appoint at least a CEO or president, a secretary, and a chief financial officer. In a small corporation, one person can hold multiple officer positions.

Issuing Stock to Founders

The board authorizes the initial stock issuance to the founders and documents what each person contributes (cash, property, or services) in exchange for their shares. This is where the corporation gets its initial capital, and it’s also where securities law becomes relevant.

Comply With Securities Law When Issuing Stock

Every issuance of corporate stock, including issuances to the founders themselves, is technically a sale of securities under both federal and California law. You don’t have to register the offering with the SEC or the state if you qualify for an exemption, but you do have to confirm the exemption actually applies.

California’s Limited Offering Exemption

Most small California corporations rely on Corporations Code Section 25102(f), which exempts stock sales from state registration when all four of these conditions are met:⁹

No more than 35 purchasers. Officers, directors, and affiliates don’t count toward the limit. Spouses and their minor children count as one person.
Every purchaser either has a preexisting personal or business relationship with the company or its directors, or has enough financial experience (personally or through an adviser) to evaluate the investment.
Each purchaser represents they’re buying for their own account, not to resell.
The offering isn’t marketed through any form of public advertisement.

The California Department of Financial Protection and Innovation may require a notice filing for transactions under this exemption.¹⁰

Federal Exemption Under Regulation D

On the federal side, most small corporations rely on Rule 506(b) of Regulation D. It allows unlimited fundraising without SEC registration, with sales to an unlimited number of accredited investors and up to 35 non-accredited investors who are financially sophisticated enough to understand the risks. No general advertising is permitted.¹¹

After the first sale under Regulation D, the corporation must electronically file a Form D notice with the SEC within 15 days.¹² Securities issued under these exemptions are restricted: recipients cannot freely resell them for at least six months to a year without registration.¹¹

Choose Between C-Corp and S-Corp Tax Treatment

Every California corporation starts as a C-corporation by default. That means the corporation pays tax on its profits and shareholders pay tax again on any dividends. The alternative is electing S-corporation status, which passes profits and losses through to the shareholders’ personal returns and avoids the second layer of federal tax.

California’s corporate tax rate for a C-corporation is 8.84% of net income. An S-corporation pays a reduced rate of 1.5% of net income to California, and shareholders still report their share of the income on their personal state returns.¹³ Both entity types owe a minimum annual franchise tax of $800 starting in the second taxable year.¹⁴

To elect S-corp status, file IRS Form 2553 with signatures from every shareholder consenting to the election. For a new corporation, the deadline is two months and 15 days after the date of incorporation. For an existing calendar-year corporation switching over, the deadline is March 15 of the year the election takes effect. California also requires a separate state-level S-corp election on FTB Form 3560; filing the federal form alone does not make you an S-corp for California tax purposes.

Meet the Early Filing Deadlines

Incorporation is a one-time event, but staying in good standing is an ongoing commitment, and several obligations kick in within the first few months.

Statement of Information

Within 90 days of incorporation, the corporation must file an initial Statement of Information (Form SI-550) with the Secretary of State. It confirms the principal address, the names and addresses of officers and directors, and the registered agent. The filing fee is $25.¹⁵ After that, an updated statement is due every year during a six-month window tied to your original filing date.

Missing the deadline triggers a $250 penalty assessed by the Franchise Tax Board, and prolonged noncompliance can lead to suspension or forfeiture of the corporation’s powers.¹⁶¹⁷

Employer Identification Number

The corporation needs an Employer Identification Number (EIN) from the IRS. This nine-digit federal tax ID is required to open a bank account, file tax returns, and hire employees. Applying online at IRS.gov takes minutes and costs nothing.¹⁸ Be cautious with third-party websites that charge a fee; the IRS issues EINs for free.

California Franchise Tax

Every corporation doing business in California owes the $800 minimum annual franchise tax to the Franchise Tax Board.¹⁴ There is a first-year exception: corporations incorporated on or after January 1, 2020 owe no minimum tax in their first taxable year. Instead, first-year tax is calculated by applying the rate (8.84% for a C-corp, 1.5% for an S-corp) to California net income.¹⁹ Starting in year two, the $800 minimum applies regardless of revenue.

Employer Registration, Workers’ Comp, and Local Licensing

If the corporation will have employees, register with the California Employment Development Department within 15 days of paying $100 or more in wages in any calendar quarter. The EDD account covers four payroll taxes: Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding.²⁰

California also requires every employer, including one with a single employee, to carry workers’ compensation insurance from the first day of employment. There is no minimum employee count threshold. Operating without coverage exposes the corporation and potentially its officers to serious penalties, including criminal charges.²¹

Finally, you’ll need a local business license from the city or county where the corporation operates. Fees and requirements vary by jurisdiction, so check with the local city clerk or business licensing office before opening for business.

1
California Secretary of State. Name Reservations
2
California Secretary of State. California Code of Regulations – Business Entity Names
3
California Secretary of State. bizfile
4
California Legislative Information. California Corporations Code 202
5
California Legislative Information. California Corporations Code 1502
6
California Secretary of State. Business Entities Fee Schedule
7
California Secretary of State. Service Options
8
California Secretary of State. Business Entities Records – Order Form
9
California Legislative Information. California Corporations Code 25102
10
Department of Financial Protection and Innovation. Corporations Code Section 25102(f)
11
Investor.gov (U.S. Securities and Exchange Commission). Rule 506 of Regulation D
12
U.S. Securities and Exchange Commission. Filing a Form D Notice
13
California Franchise Tax Board. Business Tax Rates
14
California Franchise Tax Board. Corporations Business Type
15
California Secretary of State. Instructions for Completing the Statement of Information Form SI-550
16
California Franchise Tax Board. Common Penalties and Fees
17
California Secretary of State. Statements of Information Filing Tips
18
Internal Revenue Service. Get an Employer Identification Number
19
California Franchise Tax Board. FTB Publication 1060 – Guide for Corporations Starting Business in California
20
California Employment Development Department. New Employer Resources
21
California Department of Industrial Relations. DWC FAQs for Employers