California has 4.1 million small businesses, employing 7.2 million workers and accounting for 99.8 percent of all companies in the state. As of June 2022, 42,302 new business applications were submitted, a 5.6 percent increase over 2021. California makes it attractive to set up a business by offering tax benefits and providing notable business credits for LLCs and corporations. Knowing if you want to establish an LLC or a corporation for your business in California, learn everything possible about each option and see which one is best for your type of business.

What is the Difference Between an LLC and a Corporation in California?

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Most new business owners have the biggest question in California: "What is the difference between an LLC and a corporation?"

A limited liability company (LLC) is owned by one or more individuals, while shareholders own a corporation. An LLC combines limited liability protection and a pass-through tax structure with fewer annual requirements. A corporation offers shareholders limited personal liability for debts related to the business, and stock may be sold to raise capital. Additionally, corporations must hold corporate meetings to maintain a corporation.

You may also like: How To Start an LLC in Kentucky (Cheapest way!)

Is It Better to Have an LLC or Corporation in California?

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New business owners or those with an existing sole proprietorship may want to start with an LLC. An LLC will help protect its assets, separating business debts and lawsuits from personal liability. A corporation may be an option for existing businesses looking to grow by selling shares.

Benefits of an LLC

Starting an LLC offers many benefits to business owners, including providing them with limited liability protections to help protect their assets. Also, LLCs are easier to create and deliver tax and management flexibility. Many LLC owners take advantage of the few ownership restrictions and enjoy the credibility of having an LLC for their business operations.

Benefits of a Corporation

Corporations also offer limited liability to the owners/shareholders, protecting the personal assets of those involved in the business. Additional benefits of establishing a corporation include easy transfer or ownership, better access to capital, and easy methods to raise money through the sale of shares. Finally, additional tax benefits and business continuity exist depending upon the corporate structure if an owner or shareholder dies.

Types of LLCs and Corporations in California: What is the most convenient?

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There are four leading company organizations in California - sole proprietorship, LLC, S-Corporation, and C-Corporation. Each one offers its advantages and disadvantages. The two most popular and most convenient options are the LLC and S-Corporation. Both options are perfect for small businesses, allowing each access to tax benefits and liability protection. These are two of the most accessible business options to establish and maintain.

LLC vs Corp: Which is Best in Terms of Taxes?

When it comes to paying taxes, an S-Corporation is the best option and will pay less in taxes than an LLC. LLCs are taxed as sole proprietorships, which means they tend to pay more in taxes, including self-employment tax on the business's total profits. However, as long as you pay yourself a reasonable salary, you will most likely pay fewer taxes as an S-Corp.

You may also want to read: Which is Best for a Trucking Company: LLC or Corporation?

How to Form an LLC in California?

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When establishing your LLC in California, it is vital to ensure you have all the necessary paperwork turned in and that you comply with all state laws and regulations. The steps to obtain an LLC in California include:

  1. Selecting a name for your LLC
  2. Organization of articles must be filed with the California Secretary of State
  3. Choose a registered agent
  4. Determine if your LLC will have a member or manager management
  5. Prepare the LLC's operating agreement
  6. File biennial report
  7. Pay California tax obligations
  8. Obtain an IRS Employee Identification Number (EIN)
  9. Pay the fee and obtain your business license

Depending upon the business's total income, applying for an LLC in California can cost between $900 and $12,000.

How to Register a Foreign LLC in California

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An out-of-state LLC, also known as a foreign LLC, can be registered to operate in California by applying to register as a foreign LLC. The file must be submitted to the California Secretary of State's office. Steps to register your foreign LLC in California include:

  • Applying for a foreign LLC
  • Obtain a Certificate of Good Standing
  • Find a registered agent in California

How to Dissolve an LLC in California

LLC businesses in California can be closed but must follow specific guidelines to ensure the business entity is properly dissolved. Companies can close if they follow the proper procedures to dissolve an LLC, including the following steps:

  • File all delinquent tax returns (if there are any)
  • Pay any delinquent taxes
  • Cease business transactions for the California taxable year
  • File appropriate dissolution and cancellation forms with the SOS
  • File a revivor request form with the state of California
  • Notify all creditors and vendors you are closing the business
  • Close all business accounts and credit cards
  • Publish a statement of closer in the local newspaper

How to Form a Corporation in California

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When wanting to establish a corporation in California, there are several steps a new business owner can take. Establishing a corporation in California can cost between $10 and $100, depending on the paperwork needed and the type of corporation being established. In addition, other charges may be required when forming a corporation in California.

Steps involved in establishing a corporation in California include:

  • Coming up with a corporate name
  • File articles of incorporation
  • Appointment of a registered agent
  • Develop corporate bylaws
  • Appoint a board of directors
  • Hold the first board of directors meeting
  • Issue stocks and appropriate stock certificates
  • File statement of information
  • Comply with all corporation tax requirements

How to Register a Foreign Corporation in California

Like with an LLC, it is possible to register an out-of-state corporation within the state of California. Currently, through June 2023, there is no filing fee for foreign corporations wanting to register in California, and after that date, the fee will return to its normal $100 price. To register a foreign corporation in California, you must:

  • Submit your statement and designation by a foreign corporation with the state
  • Get a certificate of good standing
  • File a statement of information
  • Meet all annual requirements for foreign corporations

How to change ownership and officers of a corporation in California?

It is possible to change the ownership and offices of a corporation in California. To do so, you must first file a statement of information to the state of California and if it occurs between filing periods, submit an amendment. No filing fee is associated with changing ownerships or updating officers of a corporation.

How to Dissolve a Corporation in California

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When wanting to dissolve a corporation in California, you must file and pay all current and delinquent tax returns, including all penalties, fees, and interest. Cease conducting any business transaction immediately and file all requirements for SOS. When ready, file all appropriate dissolution paperwork with the state no less than 12 months after filing the final tax return. Additionally, all corporations ceasing business operations must notify all creditors, vendors, supplies, employees, and clients that the business will be closing.

Additionally, things to do include canceling all credit cards, closing checking accounts, and canceling any licenses and business permits. Depending upon the jurisdiction, it may be necessary to post a statement of closure in the local newspaper.

Best and Cheapest Registration Service Providers in California

Now that you now how and what you need to start your new business, whether is an LLC or Corporation, if you consider you may still need some help, we have also reviewed some great and affordable registration services that can help you facilitate and smooth your process of starting a new business in the state of California without breaking your bank.

Top Pick
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IncFile

IncFile
IncFile Visit site

Founded in 2004, IncFile have been able to assist over 500,000 businesses along the way. Since then, they have become one of the most famous and in-demand business formation website as they offer great services and customer support. The company has 3 different packages that you can choose from, and each one has its own exceptional value making sure that the amount you pay is worth it. Their pricing is pretty transparent and offer features and perks that some other competing service providers charge hundreds of dollars more

ZenBusiness

ZenBusiness
ZenBusiness Visit site

ZenBusiness has a lot to offer to its customers, even if you have a tight budget and choose the starter plan. The company was first stablished in 2015, and though it may be newest one within our pick, they have grown pretty fast and managed thousands of businesses in a short period of time. ZenBusiness have huge access to a lot of services and products if you buy a high level plan and a customer-friendly refund policy.

Northwest Registered Agent

Northwest Registered Agent

Since 1988, Northwest Registered Agent paved their way to be branded as a simple and straightforward company that provides incorporation services and other legal services for businesses. Despite that the company may slightly have higher fees than the above mentioned, you'll get services that are simple, easy to use and very straightforward. No confusing packages, no upsells, flat rates with no hidden fees.

How Fast Can You Form an LLC vs Corporation in California?

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Under California law, an LLC can be established within three to five days if filed online. If filing by mail, developing your new LLC can take two to three weeks. Depending on the LLC organization, setting up an LLC can cost between $40 and $500. There are no expedited filing options available for an LLC. Once approved, all necessary documents regarding your business's formation will be emailed and/or mailed to you.

The time required to apply for a corporation through the California Secretary of State's Office can be up to six weeks before it is processed and approved. However, when filing for a corporation, it is possible to file for expedited processing, which can reduce the time for approval down to a couple of weeks. Additionally, rush processing might be available, which can take about two to three business days for a corporation's approval.

Is LLC Worth It in California?

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Having an LLC in California offers liability protection, which is worth the additional costs. In addition, an LLC protects all of your assets should your business get sued or be unable to pay its debts.

Which Is Best to Form in California LLC or corporation?

Depending upon your business, forming an LLC is the best option because it allows you to remain in control of your business operations. However, if your business continues to grow, an LLC might not be enough to cover all of your business needs and liabilities. Therefore, a corporation may be the best option for companies seeking outside investments and a more structured corporate organization.

Top 5 States to Have an LLC and Why

The five best states to establish an LLC include:

  • Delaware: This state is business-friendly, offering LLCs low filing fees and franchise taxes compared to other states.
  • Nevada: This state allows complete anonymity with public filings for an LLC.
  • Wyoming: This state does not impose strict reporting obligations for business owners and has a low tax percentage for personal tax and corporate income.
  • Alaska: This state offers no state income tax or sales tax, making it very attractive to potential business owners.
  • South Dakota: This state does not charge any sales tax and offers zero corporate tax rates.

You may also be interested in reading: How To Form an LLC in Ohio (Cheapest way!)

Top 5 States to Have a Corporation and Why

When it comes to establishing a corporation, some states are more attractive to business owners than others. Below are the top five states to develop a corporation:

  • Wyoming has a low corporate tax rate and offers a strong economy, offering room for corporations to grow and expand with lower fees than most states.
  • South Dakota: This state is another state with low tax rates and offers corporations tax stability and other tax credits and benefits.
  • Alaska: This state offers stability for corporate business owners and provides no income and minimal sales tax, which are excellent advantages for businesses.
  • Florida: Florida has stayed at the forefront of most business benefits, including no sales tax or property taxes for businesses and other tax benefits, and is the state to go to tourist-based firms.
  • Montana: This state has taken a step back from charging high property taxes and is one of the best states regarding taxes for businesses.

We hope this guide has been helpful on learning how and what you need to do to start your new business, as well as which type of business better aligns your needs. If you are looking to start a new business in California, you can also contact any of the registration companies mentioned in this guide to learn more about the different advantages of starting a business in California. These companies are dedicated to helping new businesses and offering any management support needed.

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