Setting Up a Company in California

Setting up a company in California is especially attractive for entrepreneurs who wish to operate in one of the largest and most economically powerful markets in the United States. California is renowned for its technology sector, start-up scene, film and creative industries, trade, e-commerce, real estate, research, healthcare and enormous consumer market. When forming a company, you first need to decide on the legal form, company name, ownership structure, management arrangements, address and the documents the company will require once registered.

When choosing a state of formation, think about where the company will really be doing business. If it will have an office, staff, a warehouse, customers, management or another significant connection with California, forming the company directly in California may be more practical than incorporating in another state and then registering in California as a foreign entity. A company formed in Nevada, Wyoming or Florida may still need to register in California if it genuinely trades there.

Assessing the tax and administrative position is particularly important in California. The state is highly attractive for business, but it is also one of the more heavily regulated states, with more demanding tax obligations. A C-Corp must address both federal taxation and California’s corporate rules. An LLC, in addition to its federal regime, must allow for California’s annual tax, any LLC fee, the Statement of Information and further obligations depending on its sector.

A California company can enhance your credibility with partners, investors, technology firms, suppliers and customers, particularly if your business targets the US West Coast. For projects connected with Silicon Valley, Los Angeles, San Diego, San Francisco, Sacramento or other Californian hubs, a California company may be the obvious choice.

With California, however, you should also plan ahead for the company’s ongoing administration. Companies file a Statement of Information, maintain a registered agent or service address, monitor tax deadlines and, depending on their activities, deal with licences, sales tax registration or employer obligations. It is therefore sensible to set the company up so that it is administratively ready from the outset.

When forming a company in California, or later when organising its tax affairs, several regimes may be considered depending on the type of company:

• an LLC can be tax-transparent, meaning its profit or loss passes through to the owners on the principle of pass-through taxation,
• a corporation can be taxed as a separate entity, with a further layer of tax possible when dividends are paid,
• if the owners make no specific tax election, an LLC is treated by default as a transparent entity and a Corp as a separately taxed company.

• Setting Up a Company in California
• Forming an LLC in California
• Taxes in California
• Sales Tax in California
• Filing a Tax Return in California
• Apostille in California
• Apostille for a California Business Register Extract

What Our California Company Formation Service Covers:

– Fees. The state filing fee for forming your company in California; – EIN / ITIN. Obtaining a US EIN tax number and help with the company’s tax identification; – Legal documentation: a certificate confirming the company’s formation or existence; the owners’ initial resolutions; the managers’ initial resolutions; a register of members or shareholders; a list of managers or directors; share certificates for a corporation; an operating agreement, bylaws or other internal documents suited to the chosen legal form; – Corporate Kit. A high-quality binder for keeping the company’s key documents; – Registered office. A registered agent or California address for receiving official correspondence, with the option of mail scanning or forwarding; – Apostille, which may be required to use California company documents abroad, open an account outside the USA or present documents to banks and authorities.

Why Set Up a Company in California?

• – access to one of the largest markets in the USA,
• – strong credibility in the technology, creative, business and investment sectors,
• – well suited to doing business in Silicon Valley, Los Angeles, San Francisco or San Diego,
• – a solid reputation in dealings with investors, partners and customers on the US West Coast,
• – the option of forming an LLC or a Corporation to fit your business plan,
• – flexible internal rules governing relations between owners through an operating agreement or bylaws,
• – registration for sales tax and other obligations according to the company’s actual business activity,
• – limited liability for owners, provided the company is managed properly,
• – owners and managers may be foreign nationals without US residence,
• – California is ideal for companies wishing to operate in a large US market and build their brand in an economically powerful state.

Federal taxes

Types of federal tax: Federal taxes for companies (income tax) – these apply mainly to companies taxed as a C-Corp. Federal taxes for individuals (income tax) – these concern LLC owners, individuals and other pass-through structures.

Ltd., Inc. and Corp. entities are usually treated as a C-Corp under the US system unless a different regime has been elected. A C-Corp files a federal tax return and pays tax as a company, and shareholders may be taxed again when dividends are paid.

S-Corp is a special regime open mainly to US citizens and permanent residents. Foreign owners who do not live in the USA therefore usually opt for an LLC or a C-Corp.

LLC (Limited Liability Company) is tax-transparent in its default form. Its profit or loss is not taxed as a liability of the company but is passed on to the owners. If a California LLC has staff, offices, a warehouse, management or another business presence in the USA, both its federal and its California tax obligations must be addressed.

Social contributions mainly affect LLC owners who live in the USA or are self-employed. In that case, self-employment tax, Social Security and Medicare may become payable.

Individuals are taxed on their income according to their tax residence, the source of the income and their connections with the USA. Foreign owners would be well advised to have the structure in place before the business starts operating.

State income taxes

Types of state income tax: State income taxes for companies – in California, these apply to corporations, LLCs and other entities doing business in the state. State income taxes for individuals – these may affect owners with a tax connection to California or income from Californian sources.

California is among the states with stricter tax rules. Corporations must budget for California income tax or the minimum franchise tax. LLCs generally pay an annual tax and, depending on their income, an additional LLC fee. What counts is not only where the company was formed but also where it actually operates and where it has staff, offices, a warehouse, management or a significant economic presence.

If a company is formed in another state but genuinely trades in California, it may need to qualify in California as a foreign entity and comply with California’s tax and administrative requirements. For businesses aimed at the Californian market, it is therefore often worth considering whether forming the company directly in California would be more practical.

Sales tax – state turnover tax

Sales tax depends on the customer’s location, the type of sale and whether a sales tax nexus has been established. If a company sells to customers in California or has a sufficient economic or physical presence there, it may have to register for and collect California sales tax. Companies selling online should also monitor the rules in other US states.

Tax rates

Ongoing annual obligations