A stock corporation is a common business structure in California that allows a company to operate with a formal structure governed by state law. Understanding this corporate form involves its defining features, the people who run it, the creation process, and the obligations for maintaining it.
What is a California Stock Corporation
A California stock corporation is a for-profit business entity that is legally separate from the individuals who own it. This separation means the corporation itself can own property, enter into contracts, and be a party in legal disputes. Creation of this entity is a formal process, requiring specific documents to be filed with the California Secretary of State.
This structure is distinct from simpler business forms like sole proprietorships or general partnerships, where the business and its owners are legally the same. It also differs from a Limited Liability Company (LLC) in its ownership and management framework. The defining feature of a stock corporation is that its ownership is divided into shares of stock, which represent a shareholder’s stake in the company.
Defining Characteristics of Stock Corporations
The California Corporations Code establishes the specific attributes of a stock corporation. A primary characteristic is the issuance of stock, where ownership is represented by shares. Shareholders contribute assets, like money or property, and in return receive shares that signify their ownership interest. This structure facilitates investment.
Another feature is limited liability, which protects the personal assets of the shareholders. Generally, owners are not personally responsible for the corporation’s debts or legal liabilities; their financial risk is limited to the amount they invested in the company’s stock. The corporation also has perpetual existence, meaning it can continue to operate indefinitely, even if its original owners are no longer involved. Ownership can be transferred through the sale of stock.
Key Roles in a California Stock Corporation
A stock corporation’s governance is divided among three groups: shareholders, a board of directors, and officers. Shareholders are the owners of the company, and their ownership stake is determined by the number of shares they hold. Their roles include electing the board of directors and voting on significant corporate matters, such as mergers or amendments to corporate documents.
The board of directors is elected by the shareholders and is responsible for overseeing the corporation’s strategic direction and business affairs.1FindLaw. California Code, Corporations Code – CORP § 300 They appoint and supervise the corporate officers who manage daily operations. The officers, such as the President, Secretary, and Chief Financial Officer, are responsible for the day-to-day management of the corporation.2FindLaw. California Code, Corporations Code – CORP § 312
Preparing to Form Your Stock Corporation in California
Before filing any official paperwork, you must select a unique corporate name that complies with California law and is not already in use, which can be checked on the Secretary of State’s website. You must also appoint an initial agent for service of process, an individual or registered corporate agent in California responsible for receiving official legal and tax documents.
Next, you must decide on the corporation’s share structure, specifically the total number of shares the corporation is authorized to issue. This information is required for the Articles of Incorporation. This form requires the corporate name, a statement of business purpose, the name and California street address of the agent for service of process, and the share structure details.3FindLaw. California Code, Corporations Code – CORP § 202
Filing Your California Articles of Incorporation
Once the Articles of Incorporation form is complete, the next step is to file it with the California Secretary of State. This can be done by mail, in person, or online through the Secretary of State’s bizfile Online portal. The standard filing fee for this document is $100.
Processing times can vary depending on the submission method. Upon successful filing, the state returns an endorsed copy of the Articles of Incorporation. This endorsed document is needed for subsequent steps, such as opening a corporate bank account.
Ongoing Compliance for California Stock Corporations
Maintaining a corporation in good legal standing requires ongoing compliance. Within 90 days of incorporation, and annually thereafter, the corporation must file a Statement of Information.4FindLaw. California Code, Corporations Code – CORP § 1502 This form updates the state’s records with the current names and addresses of the corporation’s directors, officers, and its agent for service of process. The filing fee is $25, but failure to file by the due date results in a $250 penalty.5Franchise Tax Board. Corporations
Corporations must also adhere to certain formalities, including holding regular meetings for both shareholders and the board of directors and keeping detailed records of these meetings in the form of minutes. All California corporations are also subject to an annual minimum franchise tax of $800, payable to the Franchise Tax Board (FTB).6Franchise Tax Board. Corporations