How to Start a California S Corporation

By Jeffry Olson, J.D.

How to Start a California S Corporation

By Jeffry Olson, J.D.

All corporations in the State of California begin as C corporations. This means the corporation is taxed pursuant to Subchapter C of the Internal Revenue Code. To convert the C corporation to an S corporation in The Golden State, the corporation must follow a set of steps, filing the appropriate forms with the state as well as the U.S. Internal Revenue Service (IRS).

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Starting a California S Corporation

To create an S corporation in the State of California, you must follow a few steps in accordance with state law. Below these steps are outlined to help you successfully create your company.

1. Draft and file your Articles of Incorporation with the state.

To form an S corporation in California, first draft the articles of incorporation for the business. The articles must include the name of the corporation, the statement of purpose of the corporation, the registered agent for legal service, the corporate address for the business, and the number of shares the corporation will issue. Each incorporator must sign the articles. The articles may include additional information regarding management of the corporation. The State of California does not require a corporation to draft bylaws, but the corporation may do so.

After drafting the articles of incorporation, file the articles with the California Secretary of State. You may file the articles online, by mail, or in person. In addition to the normal filing fee, the corporation must pay an additional fee if it hand delivers the articles for filing.

2. Requirements for S Corporation Status.

The next step is determining whether your corporation qualifies for S corporation status. The corporation must first be an eligible, domestic corporation, according to the tax code. It must only have one class of stock and may not have more than 100 shareholders. These shareholders must be individuals—not corporations, partnerships, or nonresidents—and they must all consent to the corporation changing its classification. Lastly, the corporation must have a tax year ending on December 31 or another tax year approved by the IRS.

3. Filing for S Corporation Status with the IRS.

Upon determining that your corporation is eligible, request S corporation status with the IRS by filing Election by a Small Business Corporation (Form 2553) within two months and 15 days after the beginning of the selected tax year. The corporation may also file any tax year prior to the tax year it desires this specific status to take effect. A corporation may request a late election with a showing of reasonable cause for failing to file on time.

Note that it is important to closely follow the instructions on Form 2553, including the signatures of all shareholders. You must also select the tax year for operation as an S corporation. After completing Form 2553, send it to the correct office, based on the location of your corporation. Failure to properly file the form in a timely manner will result in the delay of your specific tax treatment until the following tax year.

In California, all corporations start out as C corporations, but that can easily be changed. By filing the appropriate state and federal paperwork, your C corporation can transform into S corporation in The Golden State.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.