Form a California Corporation

Form a California Corporation

A primary reason to form a California corporation is to gain limited liability protection for your personal assets from your business obligations.  The liability protection is granted to corporations by California Law; however a distinct separation between personal and business assets must be maintained.  The shareholders, or owners, are considered to be a separate entity from the legal corporate entity of the corporation.  

Typically a shareholder will not be responsible for the debts and obligations of the corporation or from litigation where the company is the defendant if the corporation has been properly maintained.  This liability protection is not available to a partnership or sole proprietorship.  On the other hand, creditors can go after the owners personal assets of the owners of a partnership or sole proprietorship.

Create a Corporation and Limit Personal Liability

Incorporation in California effectively creates a separate entity from the owners of that company.  Therefore, if a California corporation is sued; legal provisions and UCC Code exist to protect the owners, directors, shareholders, and employees from personal liability.  The protection of a corporation can shield you from being personally liable for the debts and obligations of the business – a significant reason to incorporate online.

Advantage of forming a corporation:

• Corporate existence is not dependent on its owners; the company possesses the feature of unlimited life. If an owner dies the remaining owners can keep the California Corporation operating;
• Ownership is transferable, as long as it does not conflict with securities laws.
• And finally, under certain circumstances, forming a corporation for your business can lead to a reduction in taxes.

Who is Liable for the Corporate Debts?

When a California corporation is run correctly, the business should be operated separately from the owner’s personal transactions.  If a business has a debt or judgment against it, the corporation typically will be responsible for that debt, not the owners.  However, situations do exist where owners are held personally liable for corporate debts.  This is called “piercing the corporate veil.”  Many other types of entities will leave the owners directly responsible for the debts and obligations of the company.  For example, all businesses in California have risk and you should incorporate in California to receive the added legal protection of incorporation.  If anybody is injured while shopping or working in your store or using the items you sell, your company may become named in a lawsuit. You must remember that you can be held responsible for any debts or obligation that you personally guarantee.

Keep your Incorporation in Good Standing

Each year the shareholders of a corporation are required to file a Statement of Information with the Secretary of State.  The statement notifies the SOS who is running the company and how to contact those individuals.  Since this form is required to be filed each year, it is a great way to update the state with new information for the company like changes in address and affiliated individuals.  To stay in good standing, the business must maintain a business license, pay all required taxes, and operate legally.  It is not hard to maintain a good standing, but the best key to doing this is making sure that you always notify the Secretary of State with changes in address or other business information.  We can help you to do this.

How long does a California Incorporation exist?

To make a long story short, a corporation in California can exist for as long as you want it to.  It can exist beyond the lives of the owners, or it can be dissolved at any time as decided by the shareholders.  Once you incorporate in California, you can always change your mind or terminate your registration at a later time.  You will want to make sure that you check with an accountant before terminating a corporation in California because taxes or other fees may be due.