California Incorporation

Choosing The Right Corporate Name

Please note California is extremely rigid when it comes to new corporate names that are either identical or even similar to the name of an existing California corporation. Therefore, it is essential for your corporate name to be as unique as possible.

Here are the examples:

Example: RMK INC. The chances of this going through are virtually zero. Whereas RMK Construction Inc. has much more of a chance because the word construction makes it more descriptive, thereby adding uniqueness to the name.

Example: Green Tree Enterprises. There is no way this name will go through because it is too generic. Compare to Green Tree Entertainment-this name has more uniqueness.

Please note: In the above example the word Enterprises is considered a non-searchable word. Words such as services, ventures, enterprise, concepts, group etc. etc. are not considered searchable. You may use them in the name, however, they are not part of the name search.

If you do not wish to restrict your business by adding a trade description in you name, then make sure the name itself is unique.

Example: If you don’t wish to restrict yourself by saying RMK Construction Inc., then instead of RMK Inc. you are going to be more creative like Robert’s Magic Kingdom Inc.

Federal Tax ID Number

The equivalent of a social security number for a Corporation. You will need it to operate your business and open a bank account for the Corporation.

Sub-Chapter S

If you are a Citizen or Permanent Resident of the United States, this is the most tax advantageous type of Corporation you can have. A regular Corporation is subject to Federal Corporate Income Taxes. Therefore, profits are taxed first on the Corporate level and then again at the individual level of the shareholders to whom the profits are distributed. This double taxation could result in a combined taxation rate of 70% or higher. A Sub-Chapter S Corporation is Exempt from Federal Corporate Income Tax, so that the earnings of the Corporation flow directly to the owners.

California Unemployment Tax Account Number

This number is used to withhold California Unemployment Taxes from your Corporation’s payroll. If you have any employees on the payroll, including yourself, you will need this account number.

California Sales Tax Number

If you sell goods or taxable services, this is your Seller’s Permit and Registration as a retailer with the State of California. This account number also allows you to buy goods for resale or export and not pay any State sales tax.

California Retailer’s Resale & Exemption Certificates

State and local tax laws require that vendors have in their files properly executed Exemption Certificates given to them in good faith by all of their customers who claim California Sales Tax Exemption.

California New Hire Reporting

Federal law requires all California employers to report basic information about employees, who are newly hired, rehired, or who return to work after a separation of employment. You must submit a report for each newly hired employee. Failure to report new hires within 20 days of their hire date may result in civil penalties. There may be a US$24 fine per each newly hired employee or, if the State determines there is a conspiracy between employer and employee not to report the penalty can be up to US$500 per newly hired employee.

Securities Exemption Disclosure Form

Whenever Securities are sold in California, the issuer is required to qualify them under the securities laws of California, unless they fall within an exemption. The issuance of securities for your corporation will fall under one of these statutory exemptions, and as such you are required by law to file the applicable disclosure documents with the Department of Corporations.

REGULAR SERVICE

Most Corporate Documentation provided by service companies includes the Certificate of Incorporation, By-Laws, Corporate Book, Corporate Seal and the Preliminary Name Search. The State of California files the documents received from according to their own work flow schedule. This process varies depending on the time of year but generally takes 2 to 3 weeks when they are not backlogged. If you need your corporation sooner, you can have the process EXPEDITED.

EXPEDITED SERVICES

If you need your corporation formed urgently, you can arrange to have the preparation of the corporate records and file your corporation within 24 hours. The State of California under this process guarantees the corporation will be filed and completed by their office within 24 hours..

Apostille

A Notarized copy of the Articles of Incorporation is usually used to provide proof of Incorporation when doing business with Foreign Countries.

IMPORTANT INFORMATION FOR FOREIGN NATIONALS

When foreigners form companies in the United States, many different factors must be taken into consideration before making a final decision. Here we will explain some of the different issues you should think about before you form your company. Please remember that this is general information and does not replace a personal consultation with an attorney. Generally, foreigners either register Limited Liability Companies or California Corporations. United States Tax laws require that foreigners pay taxes on any earnings made in the United States. Regardless of their immigration status, the United States will let you form a company here as long as you register for a Taxpayer Identification Number. The process to register is not complex. Once your application is submitted, it can take up to 18 weeks for your Taxpayer Identification Number to be assigned. We can arrange to initiate the process for you. You must have this number in order to file the proper tax returns for the corporation and in some cases it is necessary in order to obtain a Federal Identification Number which is similar to a Social Security Number that is assigned to the corporation.

Corporation Vs. Limited Liability Company

Corporations

– Pay 9% tax on profits in California and 15% to 34% taxes on profits to the IRS (only 15% of the first US$50,000 in profits).

– Have less paperwork in terms of Tax Returns that need to be filed

– Foreigners do not have to pay taxes under the corporation unless the corporation declares dividends

– Owners may act as Consultants to the Corporation under a written Consultant’s agreement completing all consulting work within their home country and billing the corporation in the United States for this service. Utilizing this strategy, it may be possible to eliminate any profits and all taxes otherwise payable.

Limited Liability Companies

– Are exempt from Federal Corporate Tax, the LLC pays no tax.

– The State of California charges a flat tax on gross receipts for the LLC’s.

– Profits, whether distributed or not, are taxed and the Owners of the LLC must pay tax at the personal level at their individual tax rate

– Have to file both a Partnership Tax Return for the LLC, and Tax Returns for each member

– While partnership tax rules are generally more flexible, the LLC should be owned by more than one person or entity to ensure classification as a Partnership for tax purposes.

– The State of California charges a flat tax on gross receipts for the LLC’s.

– Owners may act as Consultants to the LLC under a written Consultant’s agreement completing all consulting work within their home country and billing the LLC in the United States for this service. Utilizing this strategy, it may be possible to eliminate any profits and all taxes otherwise payable.

Both types of companies have the same type of legal protection in terms of the liability of the owners. Therefore, which one you choose depends on your business activity and projected profits. If the company is going to have little activity in the United States and fairly small amounts of money will be made you may form a regular corporation which has a simpler record keeping process. If the company grows and earns large sums of money, you may always register an LLC in the future. If you expect to have large amounts of profits right away, you will generally pay less taxes with the Limited Liability Company although more paperwork will have to be prepared for the IRS.

Federal Tax ID Number

The equivalent of a social security number for a Company. You will need it to operate your business and open a bank account for the Company. The application for this number requires either the social security number of one of the officers of the corporation or if all the officers are foreigners, it requires the Taxpayer Identification Number of the foreign officer.

As a foreigner, you have 2 options to choose from when you form your company:

1. You can form your corporation or LLC and apply for a Taxpayer Identification number, wait for that number to be assigned (which can take up to 18 weeks) and then apply for the Federal Id number and wait at least another 2 weeks for that by mail.

2. You may list a friend or family member who has a Social Security Number as the Secretary or Vice President of the company in order to obtain the number.

As can be seen from the above, incorporating a California company is not a simple process for a foreigner. As always in such situations, it is best to get proper professional advice to avoid the difficulty of having to unravel transactions that have been wrongly initiated.