Business

Forming a C Corporation in California has never been easier. The first thing you need to do is file the articles of incorporation with the Secretary of State. The articles along with a small filing fee payment are all the Secretary of State needs to process your forms.

Rules of Forming a C Corporation
Your corporation can begin doing business as soon as all of the pertinent paperwork has been filed and processed. An added bonus to new corporations is that there is a one year suspension of the minimum franchise tax for all corporations formed after January 1, 2000. This is an instant savings of eight hundred dollars, better known as the minimum franchise tax.

Another important requirement of forming a C Corporation is the management. The management and control of a California corporation is vested in the board of directors. The board of directors are elected by the shareholders of the corporation.

All shareholders should be aware of the tax treatment and the types of regular corporations before they incorporate in California. Forming a C Corporation also requires an annual meeting of the shareholders and the directors. This is a great way for the entity to measure its progress yearly along with its competitors.

There are many strict regulations that you must follow if you plan on forming an S Corporation. There are many tax benefits that companies receive if they incorporate in California as an S Corporation. All of these preferential tax rates and treatments will be lost if the rules of this entity are violated.

Guidelines of Forming an S Corporation
A major difference between S and C Corporations is the types of class each entities allow. C Corporations allow all types of stock to be issued and authorized. An S Corporation may only have one class of outstanding stock. This means that no preferred stock can be issued by the company.

Since the rule changes of 1996, an S Corporation is only allowed to have up to seventy-five shareholders at one time during the year. A husband and wife are considered to be one shareholder, as is the estate of a decedent. If a person owns stock in more than one capacity, then that person only counts as one shareholder.

Forming an S Corporation is a great way to increase the cash flow of your company instantly. Who wants to be tied down with the double taxation treatment of C Corporations or the untested laws of limited liability companies. Perhaps the shortest route to success is to incorporate a small business in California.

The two entities that are most alike are S Corporation LLC. Both entities have very generous tax treatments along with the same limited liability that all shareholders/members need to be comfortable. On top of that, both entities are fairly new and there have been very few legal proceedings regarding the two types of companies.

Deciding Between S Corporation LLC
An S Corporation is a pass through entity and is treated like a conduit, or partnership. For federal tax purposes, all income, gains and losses flow directly through to the stockholders without a tax being imposed. One of the benefits of forming an LLC in California are the check the box regulations.

All partnerships must fill out a form that allows the owners to select partnership or corporation treatment. Some companies that incorporate in California may choose the LLC because they would rather be taxed at the corporation as opposed to at the personal level. Nonetheless, this option can be very beneficial to certain companies and the downfall to others.

The S corporation LLCs also have several characteristics in common that make them very difficult to tell apart. Both are required to pay a minimum eight hundred dollar tax in California and can have just a single member. The selection of an entity is one of the most important decisions you can make while starting a business in California. You should go through the pros and cons of every entity before you make a decision.

The numerous advantages of forming a California S Corporation continue to increase. The result of so many tax loopholes and other favorable treatments is once again making an S Corporation the entity of choice when starting a business in California. New laws continue to appear that give the shareholders of the company more reason to smile.

New Laws Concerning a California S Corporation
The recent Small Business Jobs Protection Act of 1997 brought more fame to this previous unknown entity. The most notable change concerned subsidiaries of California S Corporations. Under a prior law, an S Corporation incorporated in California could not own eighty percent of the stock of another corporation and could not have corporate shareholders.

This new law changed the ruling for tax years beginning after 1996. The law permitted California S Corporations to own eighty percent of the stock of C Corporations and to own qualified subchapter S subsidiaries. To qualify as a subsidiary, the subsidiary would have to be eligible to elect S treatment if all of its stock were owned directly by its parent California S Corporations shareholders.

The subsidiary must be owned one hundred percent by the parent S Corporation and the parent would have to elect to treat the subsidiary as a qualified subchapter S subsidiary. The point of this is to net the gains and losses of the companies. This law has the capabilities of saving your corporation millions of dollars.

New rulings and regulations continue to surface regarding the newest entity in California, the California LLC. These limited liability companies became available less than ten years ago and appear to be having a major impact on the success of many small businesses. An LLC is preferred by many for its limited liability and other benefits that will be explained below.

Who Needs a California LLC
A defining characteristic of a CA LLC is that all members and managers have limited liability in the company. The Internal Revenue Service have published rulings that state the IRS will not rule that a California LLC lacks limited liability unless at least one member validly assumes personal liability for all obligations of the company. In other words, there is a very slim chance that you or the other members of the company would ever be responsible for company liabilities.

In addition to the limited liability, a California LLC also affects taxation. A limited liability company must follow the check the box regulations when deciding the tax treatment. This gives the owners the opportunity to select partnership or corporate tax treatment.

A huge benefit of the limited liability company is that there is no tax detriment to owners. Regular corporations are subject to double taxation issues which frequently lead to dissension within the company. For many, forming an LLC in California is the new preferred entity.