The California Company

• Which entity is best for me? Review the following to help make your decision:

• A California corporation is usually appropriate if:

• There is any chance the owners might want to become an S corporation.
• Several individuals or entities will be owners.
• Owners plan to be profitable in the first several years of operation and plan to reinvest profits for growth.

• A California S corporation is usually appropriate if:

• The company will experience start-up losses during the initial years of operation and the owner has ordinary income against which these losses can be deducted.
• The company is a single-owner entity.
• The owner wants to extract most of the profits instead of reinvesting for growth.
• The company does not expect to issue multiple classes of stock or have more than 100 stockholders.

• A California limited liability company (LLC) is usually appropriate if:

• The business is a partnership, or several different entities own the business.
• The company is used primarily to hold real estate or other income-generating assets such as stocks.
• The company has foreign investors.

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• What are state fees? State fees are the filing fees imposed by the State of California for forming an LLC or corporation in California. The state's fee for forming an LLC is $85. The fee for forming a corporation is $115.
  
  The California Company acts as an intermediary by collecting the state fees you owe on behalf of the State of California and submitting them to California on your behalf during the formation process.

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• How much stock do I need? As the owner of a California corporation, you determine the appropriate number of shares for your company. The number of shares you select will influence your cost of maintenance. Unless otherwise specified, The California Company forms corporations with 2,000 shares at a $.01 par value. If you wish to increase the number of shares or par value later in the corporation's life, you can do so by filing an amendment.

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• Where do I get stock/membership certificates? The California Company's LLC or corporate kit, which is included with your formation, contains 20 custom-numbered membership or stock certificates for your company. Additional certificates may be ordered at anytime by contacting The California Company's customer service.

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• Do I need a federal tax ID (EIN) number? The IRS requires LLCs or corporations who intend on having employees or opening a bank account to obtain an EIN. To obtain an EIN, you must provide a valid US Social Security Number (SSN) or individual tax identification number (ITIN).

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• How do I open my company bank account? It is typically best to contact the bank(s) with which you would consider opening an account to ask them what type of information they require. Most banks require a certified copy of the articles of organization (or incorporation), which is included with the complete package you will receive from The California Company. Some banks will require a certificate of good standing and a federal tax ID (EIN) number, both of which can be purchased as add-on items when ordering your company or at a later date. Most non-US clients will require the articles of organization or articles of incorporation with Apostille, which is also available as an add-on item.

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• What is an initial statement and when is it due? As a California LLC or corporation, your business is required to file an initial statement with the State of California. The initial statement provides the State of California with specific information related to your company including the legal and mail forwarding address as well as member/manager, director, and officer information. This report, included in the final package from The California Company, along with the state filing fee, is due within 90 days of filing the original formation documents.

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• When do I pay franchise taxes? California's Franchise Tax Board imposes a franchise tax on all LLCs and corporations formed in the State of California merely for existing in that state. For LLCs, the applicability of the tax is determined by the LLC's classification for federal income tax purposes. If an LLC is classified as a corporation for federal income tax purposes, it will be thus classified for California state tax purposes. If an LLC is classified as a partnership for federal tax purposes, it will be thus classified for California state tax purposes. For corporations, the franchise tax is due to California by March 1 the calendar year following your company's formation. The California Franchise Tax Board will send notification and instructions for paying your franchise taxes prior to that date.

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• What is a biennial statement and when is it due? The biennial statement is a reporting requirement imposed by the State of California on companies that are either organized (formed as an LLC and classified as a partnership for federal income tax purposes) or foreign qualifed in the state. The report must be filed biennially and is due on the last day of the calendar month of the anniversary date of the organization or qualification. You will receive notification and instructions for filing your biennial statement from the California Department of State prior to the due date.

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• What is an annual statement and when is it due? The annual statement is a reporting requirement imposed by the State of California on corporations formed in the state. The report must be filed annually no later than the last day of the corporation's anniversary month of incorporation or qualification. The State of California will send notification and instructions for filing your annual statement prior to that date.

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• Do I need to be registered to "transact business" in my home state? Your California company is a domestic company in the state of California. It is a foreign company in every other state or country. If you plan to staff offices with employees or to conduct business directly with the public in a state other than California, it may be wise to register in the alternative state. Registering in additional states is generally not necessary if you are a consultant; a one- or two-person or home-based business; or sell through independent distributors, manufacturer's representatives, wholesalers, retailers, or through mail order or the Internet. More information on what constitutes "transact business" can usually be found at the Secretary of State's office in each state. If you decide to register with your home state or any other state, be advised that most states will require a certificate of good standing from the State of California. You can order this certificate as an add-on item when you purchase your formation package or separately later, if you find that you need it.

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