A Corporation is an entity owned by shareholders while is separate legal constitution formed under state civil law. The life of corporations is perpetual in nature, and it must be registered with the California Secretary of State before starting to conduct business operations, as well as file the appropriate paperwork.
What are the advantages of forming a Corporation?
Forming a Corporation even when has a higher cost, can have many bright sides and benefits.
- Owners are not liable for the losses of the business and creditors may only look to the Corporation and the business assets for payment.
- As an owner, you will only pay taxes on corporate profits paid to you in the form of salaries, bonuses, and dividends.
- Owners have total control over their company, but they must choose directors to make the major decisions, and who also will select officers to carry on the day-to.day decisions.
What do you need to know to create a Corporation?
Any Corporation needs to have bylaws, therefore, be sure to create them when constituting your company. Also, as an owner, you will need a separate bank account and records for your Corporation. This type of ownership has a higher cost for setup and maintenance than a sole proprietorship or partnership. It is important you have strong guidance in order to choose the right type of business.
It is also key that you do some research before forming your Corporation. Learn about the different fees and requirements to open a corporation for different states. States have their own requirements regarding the rights and responsibilities of the shareholders, officers, and directors, as well as the rights of creditors in that state.
What fees do I have to pay to incorporate?
Filing Articles of Incorporation:
This is required for officially starting a Corporation. The filing fee may be a set fee, may be based on the number of shares authorized, or maybe a combination of both. This transaction usually ranges between $100 to $250 for administrative and filing fees, and it varies depending on the state in which the business is incorporating.
First Year Franchise Tax Prepayment:
This tax is paid for the privilege of doing business as a Corporation in that specific state. It usually ranges from $800 to $1,000.
Fees for Various Governmental Filings:
It is required that Corporations pay between $50 and $200 in government filing fees.
Attorney’s Fees:
If it is true that there are many options for legal advice to help you constitute a Corporation, an attorney’s professional service may be the right choice in order to avoid mistakes and time-wasting, as well as losing money during failed procedures. You may find law firms who will offer their services for rates from $500 to $700, just have in mind that these rates can change and can go up to $5,000 depending on the attorney and your Corporation’s needs and specifics.
What if I want to sell?
Corporation’s ownership is easy to transfer through the sale of stock, so new owners can be easily added by issuing additional stock. In the case of entities that are not civil law corporations, ownership interests are usually handled as “share of stock” when it comes to taxes.
How are they taxed?
This type of institutions are usually taxed under Internal Revenue Code, Subtitle A, Chapter 1, Subchapter C, unless it is determined that it should be charged under Subchapter S. Corporations taxed under the last one are taxed annually on their earnings, whiles its owners are taxed on these earnings when distributed as dividends.
Corporations taxable as C Corporation incorporated and operating in California, must file a Form 100. Additionally, are subject to an annual $800 minimum franchise tax, which is due the first quarter of each accounting period and must be regarding the activity of the corporation. If your Corporation is new, you may be exempted from paying this tax, however, any first-year net income is still subject to the 8.84 percent tax rate.
Any Corporation doing business or having an income from in and out of California will use a Schedule R in order to determine the income subject to tax in California.
What are the estimated taxes?
The estimated tax is payable as follows:
- 30 percent for the first required installment due April 15.
- 40 percent for the second required installment due June 15.
- No estimated tax payment is required for the third installment due September 15.
- 30 percent for the fourth required installment due December 15.
Have in mind that Shareholders may have to make estimated tax payments for their own reporting purposes.
What are the Withholding Requirements?
Making a prepayment of California state income tax is how is called Withholding. A Corporation that has the control revises, has custody of, disposes of, or pays California source income is considered a Withholding agent.
There is an obligation for Withholding agents to make a withhold from all payments or distributions of California source income made to a non-resident payee. However, this can be exempted if the Withholding agent receives authorization from the government for a waiver or a reduced withholding amount. Withholding is optional and can be subjected to the discretion of the withholding agent during the first $1500 payments made during the year calendar.
