Incorporating in California Made Simple – our brief guide
There are over 3.3 million small businesses in California. However, not all of these businesses are the same in terms of classification. The main types of small businesses are sole proprietors and entities (corporation or LLC). If you currently operate as a sole proprietor, there are some sets of circumstances in which incorporating your business might be a good idea. Read on for our key tips on incorporating in California.
What Does Incorporation Do?
An incorporated business is not necessarily any different than a sole proprietor in terms of how it interacts with its clients or customers. A business could choose to incorporate and the people who avail of its services might notice no difference.
However, there are significant legal and regulatory differences once a business incorporates.
The most significant of these relates to risk. A sole proprietor is personally liable for any losses their company suffers. If the business somehow racks up thousands of dollars in debt, creditors will be legally entitled to sue the owner for their own personal assets.
Incorporated companies, on the other hand, have limited liability. The owner (or owners) of these businesses can only be liable up to a certain point.
Another important advantage of incorporation is access to finance. Sole proprietors cannot sell shares of stock; corporations can. Banks are also usually more amenable to offering business loans to corporations.
Therefore, if you want to grow your business past a certain point, incorporation often becomes a necessity.
Incorporating in California
In order to change to an incorporated structure, you will need to carry out certain official registrations with the Californian authorities.
First, you will need to name your corporation. The only rule in this regard is that the name you pick cannot be too similar to an existing corporation name in the state.
You will then have to file Articles of Incorporation, which contains all the important legal information about your company. Within 90 days of filing the Articles of Incorporation, you will have to file a Statement of Information, a document which must be updated once a year for the duration of the life of the company.
The Registered Agent
An important aspect of incorporation is the appointment of a registered agent. This is a person or organization that is legally entitled to receive certain documents on behalf of a company.
This is quite a limited role, but an important one nonetheless. California companies are legally required to have a registered agent and are not allowed to carry out the functions of the role themselves.
An officer or director of the company may be named as the registered agent. Some corporations also use third-party service providers for the role.
Making Your Business the Best It Can Be
There are advantages to every business structure, depending on the size and scope of your operations. However, once you reach a certain size as a sole proprietor, it is usually time to consider incorporation.
If you are considering incorporating in California, we can help you through every step of the journey. Contact us today to learn more about what we can do for your business.