How to Start an S Corporation in California [2025]

Although California isn't ranked among the most business-friendly states, it remains a top destination for entrepreneurs. A strategic tax plan is one key to leveraging the numerous advantages of operating in the region, which begins with selecting the optimal business entity. For many California-based business owners and entrepreneurs, the tax savings and liability protection of an S corporation have made this entity a popular choice.

However, an S corporation alone won't help you adhere to California's unique requirements, including its tax rates and Form 100S, nor will it maintain compliance with its ever-changing rules and laws. That's why a large number of owners turn to tax experts as part of an overarching strategy to maximize performance in California from the start.

Many California-based businesses trust 1-800Accountant, America's leading virtual accounting firm, with these tasks, including full-service S corp formation and year-round tax advisory. Our suite of affordable, tax-deductible accounting solutions is offered at a flat rate, eliminating unpleasant billing surprises as we support your California business endeavors throughout the tax year. 

Use this blog to understand what an S corp is, the requirements unique to the state, and a detailed, multistep guide that will lead you through the S corp entity formation process.

Key Takeaways

California requires you to complete and file a form exclusive to the state to operate your small business as an S corp. To help you navigate the process, we’ve compiled a comprehensive 12-step guide to successfully starting your S corp in California.

The steps increase in complexity and include:

• Check name availability, choose a business name, and obtain an EIN

• File articles of incorporation, registered agent, and corporate bylaws.

• S corp director election, meeting requirements, and issuing stock.

• Statement information, Form 2553, and Form 100S guidance.

What Is an S Corporation?

An S corp is a corporation that is taxed as a pass-through entity. Owners must elect to operate as this tax status, as it's not a business structure. Pass-through taxation means that credits, deductions, state income tax, and losses flow through the S corporation to each shareholder, who then handles them on their personal income tax returns.

To qualify as an S corp, your business must meet these federal requirements:

• Be a domestic corporation

• Have no more than 100 shareholders (owners)

• Have only allowable shareholders

• Have only one class of stock

• Not be an ineligible corporation (certain financial institutions, insurance companies, and domestic international sales corporations)

Allowable shareholders may be certain trusts and estates, but they may not be corporations, non-resident shareholders, or partnerships.

S Corporation Requirements in California

In addition to federal S corp requirements, the California Franchise Tax Board issues requirements that are unique to the state, such as Form 100S. You’ll file Form 100S if your business is:

• Operating in California

• Incorporated in California

• Receiving California source income

• Registered to do business in California with the Secretary of State

After initial filing, file Form 100S annually to maintain compliance. In addition to 100S filings, other requirements apply to your California S corp, including:

• Paying the $800 minimum franchise tax

• Being subject to the California 1.5% S corp tax rate

New S corps filing an initial return for their first taxable year may have the minimum franchise tax waived if they are registered with the Secretary of State. If your S corp isn’t registered with the Secretary of State for the first taxable year, it will still be subject to the minimum franchise tax and the 1.5% tax rate.

Your new S corp should also calculate and submit quarterly estimated taxes four times per year, which helps maintain compliance. 

Steps to Start Your S Corp in California (12-Step Guide)

Follow these 12 detailed steps to form your small business as an S corp in the state of California.

1. Check Name Availability

After you've created a list of prospective business names, three or four candidates are appropriate to start; you'll check to see if they are available via the California Secretary of State's business search tool. 

Your business name will be checked against the same business entities registered with the Secretary of State when you search their database.

You have the option to reserve your business name for 60 days for a fee of $10. After 60 days, you can renew the first name reservation, provided there is at least one day between each reservation.

2. Choose a Business Name

Once you've identified available business names, you must choose one. Choose a business name that is: 

• Distinguishable in the records from other corporations of record

• Reserved with the California Secretary of State

• A name that is not likely to mislead the public

Finding a unique brand name and matching domain can be a time-consuming task for a new business owner. Ensure consistent branding and improved search engine optimization (SEO) by selecting a business name and domain that are similar in style. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes. 

3. Obtain an EIN

There are three options available for filing your Employer Identification Number (EIN). You can receive your Federal Employer Identification Number (FEIN) by fax, by mail, or online, and each option is free: 

• You'll receive an EIN faster if you apply online.

• If you apply by fax, receiving your EIN with a provided phone number will take up to four days.

• If you apply by mail, receiving your EIN will take up to four weeks.

Schedule a call to learn how we can help you obtain your EIN.

4. File Articles of Incorporation

To start your California S corp, prepare and file your Articles of Incorporation. You’ll complete the Articles of Incorporation-General Stock form and send it to the Secretary of State. 

You must provide the following information to prepare your Articles of Incorporation, including: 

• Name of the proposed corporation

• Address, city, state, and zip code

• Agent for service of process (registered agent in California)

• Type of corporation

• Number of shares the corporation can issue

• How long the corporation will last if the goal is not to exist perpetually

• Purpose statement

• Signatures of each incorporator

The fee to file Articles of Incorporation is $100, and you can submit the form online or by mail. Filing online is typically the fastest option. 

5. Appoint a Registered Agent

Registered agents are also known as agents for service of process in California, and you'll need to select one for your S corp. The agent for service of process will accept legal documentation on your business's behalf, such as court papers, if your S corp is sued.

Consider these points for registered agents for service of process in California:

• An agent for the service of process can be a corporation or an individual.

• If the agent for service of process is a corporation, it must have previously completed Form 1505, Registered Corporate Agent for Service of Process Certificate.

• If the agent for the service of process is an individual, the individual must live in California.

• A business entity cannot act as its own agent for the service of process in the state of California. However, the business owner can, provided they meet eligibility requirements. 

If you have privacy concerns or are unable to fulfill your duties as an agent consistently, consider using a professional service. Annual registered agent fees range from $100 – $300. 

6. Draft Corporate Bylaws

Corporate bylaws establish how your corporation will operate and prove its legitimacy.

The primary distinction between corporate bylaws and Articles of Incorporation is that the Articles of Incorporation must be filed externally, whereas bylaws are primarily used as internal governance rules. 

Your corporate bylaws should contain basic information about your S corp, including: 

• Address

• Designation of the corporation (public or private)

• The fiscal year of the corporation

• Name

• Principal place of business

Your bylaws should also contain information about the essential functions of your S corp. This may include:

• Board of directors

• Director functions

• Meeting procedures

• Shareholder meetings

7. Elect Directors

Shareholders elect directors who will serve on the board of directors, acting on behalf of your S corporation. Duties and responsibilities they will have include: 

• Directors will announce corporation-related developments at the annual meeting.

• Directors will create the mission of the S corp, often as a mission statement.

• Directors will ensure the S corp meets its financial and legal obligations.

• Directors will review the actions of the corporate executive and set policies.

The directors you elect will play a substantial role in oversight and compliance. 

8. Hold Initial Meeting

Before establishing your California S corp, you should become familiar with and keep track of a few meeting requirements. 

First, the board of directors will keep meeting minutes and adopt bylaws. Second, there are no rules regarding what to include in meeting minutes or outlining how to track these minutes.

It may be helpful for your meetings to contain an outline that can resemble:

• Agenda for approval (the board can approve additions)

• Minutes of the last meeting for approval

• Reports from committees and executives

• Old business (carried over from a previous meeting)

• New business

• Comments and announcements

• Adjournment (with time)

• The next meeting date

9. Issue Stock

Issuing stock is another step to take when starting your S corp in California. While C corps can issue several types of stock, only a single class of stock is allowed for S corps. 

10. File Statement of Information

An S corp’s Statement of Information requirements differ from those of other business entities in the state: 

• You must file a complete Statement of Information within the first 90 days of filing the Articles of Incorporation. 

• After filing the Articles of Incorporation, a Statement of Information is due every year. 

• You can file subsequent Statements of Information online.

A $25 fee is associated with this filing. 

11. File Form 2553 (IRS)

You must file IRS Form 2553, Election by a Small Business Corporation, to convert your California corporation to an S corp at the federal level. You’ll need information about your S corp to complete this step, including:

• Address, name, and signature of each shareholder

• Business address and name

• Company EIN

• Company officer signature and title

• Company’s state of incorporation

• The date of incorporation

After completing Form 2553, you can fax or mail it to the IRS. The IRS does not currently permit the electronic filing of this form. 

12. File Form 100S (California)

Filing Form 100S will allow you to operate your S corp within California. 

In this step, you’ll need to submit several pages of information about your S corporation, so it is imperative that you've completed the previous steps before completing and filing this form. 

File this form annually to maintain S corp status in the state. 

Costs of Starting and Maintaining a California S Corp

There are one-time costs associated with establishing your business in California, along with ongoing costs related to maintaining this status. 

Initial Formation Costs:

• Articles of Incorporation ($100)

• Name reservation ($10 optional)

• Registered agent ($100 – $300/year if using professional service)

• Statement of Information ($25)

Ongoing Costs:

• $800 franchise tax (waived first year if registered).

• 1.5% California S corp tax.

• Annual Statement of Information ($25).

• Optional: legal, payroll, and bookkeeping support.

S Corp vs. LLC in California – Which Is Right for You?

The optimal entity for your business during the startup phase and in early years may not be best suited to support your operations later on. Operating as a limited liability company (LLC) or S corp offers numerous benefits, but which is right for you? 

S Corp Pros: 

• Substantial self-employment tax savings

• Increased credibility

• Pass-through taxation

LLC Pros: 

• More flexibility in ownership

• Fewer formalities.

• Limited liability protection

Consider consulting a tax advisor for a business entity analysis to determine the best fit for your operations. 

S Corp Compliance Deadlines You Need to Know

Maintaining compliance for your California S corp is essential. Compliance ensures you avoid costly penalties and distractions. 

Ensure you prepare and file the following materials by the corresponding deadline:  

• Annual Form 100S filing deadline (March 15). 

• Federal IRS Form 1120-S, U.S. Income Tax Return for an S Corporation, due date (March 15 for calendar-year corps, extensions available).

• Quarterly estimated tax payments (Sept 15, Jan 15, April 15, June 15).

• Annual Statement of Information. (Due on the last day of your incorporation month anniversary) 

Other Requirements & Considerations

Review this list of other requirements and considerations for your California S corporation. 

• All S corps owners in California will pay a franchise tax. The minimum franchise tax for S corp status is $800, due in the first quarter of each accounting period. You’ll pay this tax whether your corporation is active, inactive, operates at a loss, or files a return for a short period (under 12 months).

• California waives the minimum tax on newly formed or qualified S corps filing an initial return for their first taxable year if they’re registered with the Secretary of State.

• Every S corp will pay an additional 1.5% tax on its California source income, even if it’s the first year in operation.

• S corp owner-employees must establish reasonable compensation and establish ongoing payroll. 

• Adhere to consistent recordkeeping standards and meeting minute protocols. 

• Apply for and obtain the necessary licenses and permits to ensure you can operate legally in the state. Use the CalGold Permit Assistance Tool for help obtaining your permits. 

FAQs About Starting an S Corp in California

Is the $800 franchise tax waived for first-year S corps?

Correct, assuming you take the necessary steps to qualify. California waives the minimum tax on newly formed or qualified S corporations filing an initial return for their first taxable year if they’re registered with the Secretary of State. If your S corp isn’t registered, it will still be subject to the minimum franchise tax and the 1.5% tax rate.

Can I convert an existing LLC to an S Corp in California?

You can absolutely convert your existing LLC to an S corporation in California. To convert, you'll follow many of the same steps outlined in this blog, such as filing Articles of Incorporation and a Statement of Information. If your LLC has reached a revenue threshold of $40,000 to $60,000 annually, it may be time to consider conversion. 

How do I pay myself from an S Corp?

S corps allow owner-employees to pay themselves a "reasonable salary" subject to the 15.3% self-employment tax. In this scenario, you will also receive distributions that aren't subject to self-employment taxes, which typically results in substantial tax savings. "Reasonable compensation" is a popular feature of running an S corporation.

What happens if I miss Form 100S filing?

If you miss the 100S filing deadline, you may receive penalties, suspension of your business status, or the revocation of your S corp status. If you've missed a deadline by mistake, submit materials as soon as possible.  

Is an S Corp always better than an LLC for taxes?

S corps, LLCs, partnerships, C corps, and other entities can all be beneficial depending on the current circumstances of your business. For many small businesses, an LLC may be preferred initially due to its fewer formalities, while S corp status can be beneficial as the business matures and grows.  

Conclusion: Let Us Help You Start Your California S Corp

Converting your California small business entity to an S corporation is a great decision that provides numerous advantages, but it requires more formalities than you may be accustomed to. Professional guidance can streamline this complex and time-consuming process while ensuring compliance. Many California small businesses ready to make the switch trust 1-800Accountant, America’s leading virtual accounting firm, to handle the process on their behalf. 

Our affordable, tax-deductible accounting solutions support your S corp operations throughout the fiscal year, empowering you to focus on your next business milestone. At the same time, we handle compliance and file each form, ensuring a minimal business tax liability and overall peace of mind.  

Ready to launch your California S corp? Schedule your free 30-minute consultation with a small business expert today to get started.