CONSIDERATIONS AND STEPS NECESSARY FOR INCORPORATION OF A BUSINESS IN CALIFORNIA

Several factors need to be considered prior to the incorporation of a business. The following are some of the factors:

• Where to incorporate the business. In many circumstances, the state of incorporation is where most of the business will be conducted. For example, if most of the business will be conducted in California and the shareholders are California residents then generally there is no advantage to incorporate in another state. Other factors in where to incorporate may include state laws governing shareholders’ rights, powers, and liabilities; state law governing directors’ powers and liabilities; and costs of incorporation in other states.

• Choose the name for the corporation. Once a name is chosen, the availability of the name should be checked with the Secretary of State prior to filing the Articles of Incorporation. Additionally, depending on the type of business that is being incorporated the availability of the name should be checked for availability of the domain name and if such name is protected as a registered federal or state trademark. There are some restrictions on corporate names such as, the name of the corporation may not include the words “bank,” “trust,” trustee,” or related words unless approved by the Commissioner of the California Department of Financial Protection & Innovation, and the use of the word “cooperative” is restricted.

• Determine the appropriate type of corporation. Depending on the purpose of the business there are different types of corporations such as professional corporations, non-profit corporations, close corporations, C-Corporations, and S-Corporations.

• The principal business address of the corporation and choosing an initial agent for service of process. An agent for service of process must be a natural person residing in California or a corporation that has complied with California Corporations Code §1505.
  

• Determine the capital structure for the corporation. The capital structure depends on the needs of the business to obtain assets and cash at the inception of the business and, if necessary, from time to time. Thereby, determinations must be made regarding classes of shares, the number of shares to be authorized, the number of shares to be issued, and the rights, preferences, privileges, and restrictions of any class or series of shares.

Once the above factors are determined, the Articles of Incorporation may be filed. In California, the mandatory provisions that must be included in the

Articles of Incorporation are:

• Name of the corporation
• Purpose of the corporation
• Agent for service of process and the street and mailing addresses of the corporation
• Stock structure of the corporation
• If it is a “close corporation,” the Articles of Incorporation must state that the corporation is a “close corporation” and that all of the corporation’s issued shares of all classes must be held of record by not more than a specified number of persons, which number may not exceed 35.

There are also optional provisions that may be included in the Articles of Incorporation such as the duration of corporate existence, restrictions on transfers of shares, and provisions regarding directors.

After the filing of the Articles of Incorporation with the California Secretary of State, an organizational meeting of the directors must be held. If the initial directors have not been named in the Articles of Incorporation, the incorporator elects the initial directors. Some of the matters to be determined by the directors at the organizational meeting are:

• Appointment of a temporary chairman and secretary of the meeting
• Adopt bylaws
• Adopt a form of stock certificate and seal of the corporation
• Ratify the appointment of the agent for service of process in the Articles of Incorporation or appoint a new agent for service of process
• Elect officers of the corporation including a president, secretary, and treasurer
• Bank resolutions
• Offer and issues shares and the amount to be paid for the shares
• Adoption of the accounting period
• S-Corporation election, if applicable
• Ratification of pre-incorporation contracts

The above is just a brief overview of the considerations and steps that need to be taken in the incorporation of a business. It is imperative to consult with an incorporation attorney to avoid potential mistakes and problems prior to and after the incorporation of your business.

DISCLAIMER

The information contained in this article is for general informational purposes only. Any information in this article should not be relied on as legal advice or a direct solicitation of clients. You should consult an attorney regarding advice for your individual situation. The content of the article may be not be up to date as there may be recent changes or developments in laws, ordinances, statutes, regulations, court opinions, rulings, or verdicts. Nothing in this article should be taken as creating an attorney-client relationship. Legal advice is only provided to clients that have executed a written retainer agreement with an attorney.