Edited July 2022 to include the latest changes to the CA Secretary of State web site which actually changed the number of steps from 7 to 13. Is it easier? Not really, but honestly it wasn’t hard to begin with so read on!
So you’ve decided to protect your personal assets and save thousands of dollars by incorporating. Congratulations! Good decision! Don’t worry you won’t regret it and I’ll keep writing articles to help you every step of the way.
Since we’ve established that the best time of year to form your corporation is as early in the year as possible, the sooner you get this done the better. While there are plenty of services out there that will handle your incorporation for you (and for $150 + fees, which are typically another $100 or more), I always opt to do it myself so I know exactly what’s going on. I think if you look through the step-by-step guide I’ve got below you’ll see just how easy it is.
It’s almost March so I’m a little behind, but it’s not too late to save money in 2022 and beyond.
What you’ll need:
1. 15-30 minutes
2. Credit card with $0-150 available
3. An address you can use for your company (this will be public record so only use your home address if that’s okay with you)
With the recent COVID pandemic most states have moved to an online process (if they didn’t already have one) to process corporate applications. Since I’m in California this step-by-step guide will show the process using the CA web site and forming a corporation here. If you live in another state then it’s probably best to register there and NOT in CA since the taxes here are higher than most states. If you don’t live in the United States at all and want to form a US corporation then your best bet is probably Delaware. I’ll have an article on that in the future.
I’m not sure if it’s the same in every state, but in CA the agency that handles corporate registrations is the Secretary of State. I would start with a search for that link in your state. For CA it’s here: CA Secretary of State. One of the menu choices is “Business” and you’re going to want to go there and see what they have to offer. There is a big button on the page labeled “bizfile ONLINE” and that’s exactly what we want.
Step 1: Introduction
When you click on the link above you will probably be forced to register or log in so go ahead and take care of that first. Afterwards should see something similar to the screen shot below:
Go ahead and click the “Register a Business” link
Filing in CA is $100 and a certified copy is $5. Definitely get the certified copy and I recommend getting an additional if the option is available in your state since you’ll need to show one to the bank and possibly other institutions and it could get damaged. I keep one in my files and use the other if I have to show it to anyone. California used to let you order more than one but it doesn’t look like they have that option for online orders, but I’m getting ahead of myself.
Step 2: Articles of Incorporation
The next page is a dizzying array of options for the type of company you want to create. Some of these options are new to me and didn’t know that CA specified to these levels, like “Benefit”, “Social Purpose” or “Accountancy or Law”. If any of those sound like you then feel free to research if they offer something over a regular “General Stock” corporation, but a General Stock corporation is the one upon which I’ll be focusing in this article. So go ahead and click the “File Online” button and let’s get started.
Step 3: Privacy and Terms and Conditions
You’ll hit a privacy and terms and conditions page next. I took the time to read it because that’s me, but you do you. If you want to get past this page you’ll need to check the box at the bottom and hit Next.
The neat part about these next pages is the list of tasks you have to accomplish in the left margin that I’ve drawn a red oval around. It’s easy to see how many steps are left to do. Don’t worry – they go pretty quick.
Step 4: Submitter
This page should be fairly obvious. Fill it out with your information and click Next.
Step 5: Corporation Name
The next screen is where you enter your company name. I love tennis and I love guitars and I thought there must be some way to combine those two passions. It turns out I’m not alone and there’s obviously a huge untapped market for tennis racquet guitars and I want in on that, so here I go. All in.
Your company name should be unique and you’ll need to end it with a proper corporate suffix like “Inc.”, “Company” or “Corp.”. You are also allowed to reserve it in advance through other links on the S.O.S. web site too, but I’ve never bothered to do so. The chances of it being stolen out from under you are pretty slim – especially if you’re into tennis racquet guitars, but if you have reserved the name make sure you check that radio button.
Although you don’t need to reserve a name you should at least do a search to see if your desired name is taken. There should be a search feature on your state’s site like there is in CA here. Phew – “Tennis Racquet Guitars” is still available.
Step 6: Business Address
The next page is where you enter the address for your company. If you have an actual retail or commercial location then obviously use that. If you work from home you can use your home address or one of the many address services out there that provide a street address at a reasonable cost. This address is public record, which means anyone can look it up. I like you guys, but I still don’t want any surprise visits at my house, so I purchased a box at the local UPS store for my new business. Note that you CANNOT use a P.O. Box so make sure your mailbox service gives you a real street address.
If your mailing address isn’t the same as your street address you can enter a separate mailing address, otherwise just retype your principal office address.
Step 7: Directors
The next step is where you can define the directors of your company, but I wouldn’t bother. This is the Articles of Incorporation and doesn’t require you to list them so why bother? You’ll have to do it again in the Statement of Information that comes later anyway and I’ll touch on that in a future article.
Step 8: Agent for Service of Process
The next page is where you declare your agent for service of process. That’s a fancy way of saying who you want to receive legal documents on behalf of the company. If you ever get sued for example you will be served at this address. In my 30+ years of business I have never received any mail at my agent’s address, but it’s required so you’ll need to fill it out. There are two options: individual or Registered Corporate Agent.
Individual Agent
Listing an individual won’t cost you anything, but one of the rules of a corporate agent is that they must be available during normal business hours of 8-5 Monday-Friday. If you’re using your home address then that person has to be there during those hours. With a mailbox service the specific person behind the counter will need to be there and you probably can’t guarantee that. If you have a retail or commercial location then you should be able to use yourself at that address.
Registered Corporate Agent
I use a mailbox service and a separate agent service. A quick search online lists many companies who will provide this service at a low cost and I highly recommend my provider, California Registered Agents. They are inexpensive and have an excellent online portal where you can sign up in minutes. You’ll need to sign up first and then finish your corporate application so make sure your corporate name isn’t taken before you do!
I opened another tab on the spot, signed up, and was back to the application in 5 minutes. After you sign up for your registered agent you will receive the corporate number for your agent which you can enter in the box. I recommend typing in their corporate number instead of the name since there are many providers with similar names.
Step 9: Corporate Shares
The next page is where you declare the number of shares in your company.
For the number of shares you are not allowed to enter 0. I like easy round numbers and typically choose 100 shares so each share represents 1% of the business. As a small business that’s perfectly normal and what I recommend. If you need to expand in the future you can increase the number of shares later. If you plan on being a C-Corp you can create separate classes of stock later too.
When you register a company you have to declare what you’re doing and in the paper form there is a space for you to write what that is. It’s commonly known as the “Purpose Statement”. I think a lot of people got tripped up on that so CA made it easy by just making is as generic as possible and filling it in for you. The actual law for it lists a few options for this statement and the electronic form just goes with the easy first one from section 202(b)(1)(A). Gotta love those subsection references.
For your File Date just decide if you want to file it now or hold off to a future date. That could come in handy if you’re filling this out in December and don’t want it effective until January, thus skipping the annual fee for the one month of operation.
Step 10: Attachments
You can probably just skip past this step, especially if you’re a small business. I’ve never needed to upload anything additional.
Step 11: Review and Signature
The next page is a summary of what you’ve done so far. Just check it over and make sure it all looks right. Scroll all the way through it and select the appropriate radio buttons for one signature or multiple, acknowledge by checking the box and fill in your name in the signature line and click Next.
Step 12: Payment
The final page is where you typically have to shell out the big bucks: $105. It looks like CA is discounting to $0 until June 30, 2023 so if you’re reading this before then you can save yourself $100. Make sure to check the certified copy box and your service option.
Step 13: File It!
The final page is where you will enter your payment information and get a confirmation page. You should receive your corporate paperwork in the mail in a few weeks after that. If they’re really behind it could take a month. If they’ve managed to automate everything by the time you read this it’s possible you’ll get your corporate information in a downloadable link since that’s certainly doable. We’ll see if the state reaches that level of efficiency.
13 Steps, 30 Minutes, 0-5 bucks.
How easy is it to form a corporation? In only 13 easy steps, less than 30 minutes and about $0 you got the job done! All of the corporate formation services on the internet are hoping you don’t see this post because it truly is super simple to start your own company. What’s next? Sign up for my mailing list and I’ll help you through it!