Deborah Chew & Associates is a full service law firm serving international companies and individuals in all corporate, immigration and real estate transactions in California. We provide a range of corporate and business law services including incorporation of companies and establishment of partnership and sole proprietorship, including drafting and filing of incorporation documents, obtaining the federal tax ID number and corporate kit and seal, filing the Domestic Stock Statement with the California Secretary of State, preparation of documents for issuance of shares and filing the Notice of Issuance of Shares with the California Department of Corporations. We represent clients in finding strategic alliances, employment matters, lease negotiations and agreements, purchase or sale of businesses and companies, joint ventures, distributorship, licensing and franchising transactions. We also represent companies in commercial and residential real estate transactions and venture capital financing, as well as all immigration law related services.
We believe in providing efficient and quality legal services at reasonable rates for companies and individuals from the Pacific Rim and Europe who seek to conduct business in the United States, and particularly in California. With three (3) offices in San Francisco, San Diego and San Jose, we are strategically positioned to fully assist our clients in all of their business needs.
I. SELECTING THE PROPER BUSINESS ORGANIZATION
- Types of Business Entities
In California and most other states, there are three basic kinds of business entities - C Corporation, S Corporation and Limited Liability Company (or LLC). A C Corporation is restricted to 35 or less shareholders and is subject to taxation at two levels: for corporate income and for dividends distributed to shareholders. For S Corporation, shareholders are taxed on income personally on their individual tax returns and the corporation need not be taxed separately. There are restrictions, however, on foreign ownership of an S Corporation. LLC is a hybrid between a partnership and a corporation. Shareholders (or 'members') pay taxes on their income, yet have the advantage of limited liability like shareholders in a corporation and the corporation need not file separate tax returns.
The California Corporations Code, the courts, and the Internal Revenue Service require that certain formalities be observed in operating a business as a corporation if directors and shareholders are to have the benefit of limited liability, i.e., protection against claims or actions against the corporation. Ultimately, the appropriateness of each type of corporate entity depends on the goals, size and requirements of the company.
- Selection of Domicile - Which State is Best?
For the foreign company or individual(s) planning to make a substantial investment by incorporation in the U.S., an important choice must be made with regard to choosing the location of incorporation - of the 50 U.S. states, which state has the most favorable business laws to suit the company's needs? If a company intends to conduct interstate business within the Unites States, it makes sense to weigh the selection of domicile issues carefully. If a company intends to restrict all of its operations to one state, however, then it makes sense to incorporate in that state only, since it would be unwise to subject itself to taxes and potential liabilities in another state.
With over 33 million people, California is easily the most populous state in the United States. If it were a nation, California's economic output would rank it seventh in the world. The hub of the computer and information revolution is situated in Silicon Valley in the San Francisco Bay Area seeding the growth of high-tech companies and companies supporting the high-tech industry in contract manufacturing, printing, travel, and other product and service industries. In San Diego, there is a "wireless" valley growing with numerous start up companies in the telecommunications industry, along with a growing biotechnology, computer, semi-conductor and manufacturing industry. California is an ideal place for a foreign company to set up a regional center for businesses all over the United States. California has the largest educated workforce, greatest markets and most dynamic business environment in the United States.
- Corporate Taxation
California currently taxes corporations on their net income from sources within California at a rate of 8.84%. California taxes are deductible from net income in computing a corporation's federal income tax liability. The tax on corporate income consists of two separate taxes, the franchise tax and the corporate income tax. Both taxes are imposed at the same 8.84% rate. Depending on the activities of the corporation, however, only one of the taxes will apply to a corporation in any given year; thus, the tax rate will never exceed 8.84%.
||S Corporations & LLC:
||15% on net income $50,000
25% on net income $50-$75,000
34% of net income > $75,000
||1.5% of net income
|9.3% of net income
|| Usually .4 - .20% of gross receipts
||S Corporations & LLC:
||Taxes on all net income
||Taxes on dividends paid from after-tax profits
||usually 15%, 28% or 31%
||15% on net income < $50,000
25% of net income $50-$75,000
34% of net income > $75,000
||varies (1 $-1 1 %)
b. Summary of Employer and Employee Tax Rates
Generally, the employer needs to withhold about 30% of the salary of each employee for federal and state taxes. In calculating the wage package for each employee, the employer needs to take into account this additional cost. The employer is responsible for withholding the proper amount of employee-paid taxes and depositing them and the employer-paid taxes in a timely manner, or the employer will be subject to penalties.
|Employer Pays For:
|Workers Compensation Insurance
|1/2 of Social Security (FICA)
||7.65% on the first $80,400 in wages,
maximum of $3,794.40
|1/2 of Medicare (FICA)
||1.45% on ALL wages
|Federal Unemployment Tax (FUTA)
||6.2% on first $7,000 in wages,
maximum $56.00 per employee
|State Unemployment Insurance (U1)
||3.4% on first $7,000 in wages
maximum $238.00 per employee
|State Employment Training (ETT)
||.1 % on first $7,000 in wages
Maximum $7.00 per employee
|Employee Pays For:
|Federal Income Tax
|1/2 of Social Security (FICA)
||7.6% on the first $80,400 in wages,
|1/2 of Medicare (FICA)
||1.45% on ALL wages
|State Income Tax
|State Disability Insurance (D1)
||.9% on the first $31,767 in wages
- The Corporate Name
The corporate name must be acceptable to the California Secretary of State and cannot infringe upon someone else's trademark or service mark. Incorporating only protects your full legal name from being used as the corporate name of another California corporation. If you want to protect your business name from being used by others, you need to register it as a trademark or a service mark.
- Time Frame
The incorporation process takes about one week by expedited processing and one month by normal processing. Our firm handles the full range of pre- and post-incorporation matters, from filings to obtaining all the corporate documents, seals and stock certificates, in California and all states, including the State of Delaware and Nevada.
II. STARTING A BUSINESS IN CALIFORNIA
Below are some frequently asked questions about setting up a California company that we will address here:
- No minimum paid up capital - there is no minimum amount of paid-up capital for a company. The paid up capital can be $2.00 or $100,000. The company's liability for a C corporation or a limited liability corporation is limited to the amount of capital that is paid up.
- No requirement for resident director and statutory indemnification - there is no requirement for a resident director. Foreign nationals can act as a director of a California company. Under the California Corporations Code, directors and officers who are entitled to statutory indemnification from the company for any actions conducted in their course as directors and officers of the company.
- Requirement for resident agent for process service - A California company is required to have a resident in California who act as an agent and accept service of documents from the United States government and third parties.
- Annual filing of Domestic Stock Statement - The company is required to file an annual Domestic Stock Statement, providing information to the Secretary of State of California for information on the principal place of business, names and addresses of directors and officers and agent for process of service and principal activity of the company.
- No requirement for annual auditing - A California company is not required to conduct any annual auditing, although some companies do it when their parent companies overseas require a consolidated financial statements.
- Establishing an Office
a. Filing a Fictitious Business Name Statement
To conduct business and reserve the name in the city in which the company is doing business, a Fictitious Business Name statement must be filed with the County Clerk of the county of the registrant's principal place of business in the state. This statement must be filed within forty days of the commencement of business.
Within thirty days after filing a Fictitious Business Name Statement, the registrant must publish the statement in a newspaper of general circulation in the same county once a week for four consecutive weeks. Thereafter, the registrant must file an affidavit of publication with the County Clerk's office.
a. Obtaining a Business License
Most cities and counties require a license to do business in their respective areas. If a business intends to operate within the incorporated area of a city, the city government will require a business permit and payment of a license fee, and will be the governing authority for most typical regulations and permits associated with running a business. The business license fee varies with location; it may be a flat rate, percentage of gross sales, or based on a combination of factors.
- Establishing Intellectual Property Rights
Even though a foreign individual or company may own intellectual property rights in a design, invention, mark, or publication in their home country, it is not necessarily adequate protection if the protected property is then introduced into the United States for sale or advertisement. Intellectual property rights are often granted reciprocal recognition in the United States by virtue of bi-lateral treaties or U.S. membership in the World Intellectual Property Organization (WIPO). However, the prudent businessperson should take additional steps to ensure protection in the U.S., by taking steps to register all claimed rights with the Federal and State governments.
The following is a brief outline of intellectual property rights available in the United States.
A patent protects inventions -- whether part of a product, or a complete product. As a legal instrument, a patent is an exclusive right which prevents others from profiting from your invention. The cost for to obtain a patent through the U.S. Patent and Trademark Office (U.S. PTO) is high, ranging from $3,000 to $20,000 depending on the nature and extent of the design and protection sought. As patent application must be carefully written, professional patent attorneys are hired. In California there exist patent information clearinghouses which assist the public in searching for patent and trademark availability.
Trademark registration is designed to protect your logos, advertising slogans or other name or symbols that represent a company and its named goods and services. Trademark rights and priorities depend mostly on who uses a mark first and how it is used in a particular type of business. Trademarks can be registered with the federal government at the U.S. Patent and Trademark Office and individually in each of the fifty (50) U.S. states. In California, the Secretary of State regulates registration of trademarks and service marks.
Copyrights protect written documents, songs, recorded performances, computer programs and works of art (including advertisements). Federal law is very strict on requiring written agreements if you designate something as "work for hire" or if a shareholder or other individual assigns their copyrights to a corporation. An attorney should be consulted before commissioning any work or using someone else's finished and copyrightable work.
- Additional Tax Considerations
a. Filing With the Employment Development Department
If your business plan includes hiring employees, you must be aware of the forms of state employment wage taxation and unemployment insurance. The California Employment Development Department (EDD) is responsible for providing a number of important employment-related services, such as assisting California employers in identifying qualified candidates for employment, but its primary function is to administer the states employment-based tax laws.
With few exceptions, a business is required to register with the EDD if it is subject to the California State Income Tax Withholding Law or Unemployment Insurance Code. Any person or organization that makes payment of wages or fees to an employee for services is immediately subject to the California State Income Tax Withholding Law. An employer is subject to the Unemployment Insurance Code upon employing one or more employees in the quarter or proceeding calendar year, and paying over $100 for wages in a calendar quarter. Employers must register with the Department within 15 days of the first payment of wages.
Employers subject to personal income tax withholding, unemployment and disability insurance must file a Form DE 1 Registration for Commercial Employers with the EDD. Upon registration, an employer receives an eight-digit account to be cited in all EDD correspondence. Registration is also required after any changes in business name, form or entity.
Instructions to employers about California's personal income tax withholding requirements and, where appropriate, state disability insurance withholding requirements, are contained in the California Personal Income Tax Withholding Guide (publ. DE 44), available at most state Employment Development Department offices. Additionally, forms (including Form DE 1) may be downloaded from the agency's web site: www.edd.cahwnet.gov.
b. Sellers Permits
Under the California Sales and Use Tax Law, the sale or use of tangible personal property in California is subject to a statewide tax, which varies from city to city at a range of 7% to 8.5%. This rate includes both a state tax and a state-administered local sales and use tax for cities and counties. Businesses in California which sell tangible personal property in the state are liable for the sales tax and must apply to the State Board of Equalization for a seller's permit for each location in the state.
Businesses using tangible personal property in California purchased for use in the state, without the payment of sales tax, are liable for use tax. A company would most commonly be subject to use tax on property which is purchased outside California and used in the state, or inventory which is purchased without tax and then converted to business or personal use.
There is no fee for obtaining a sales or use tax permit. however, for some corporations the Board of Equalization may require a security deposit.
c. City Taxes
Business taxes/license fees are generally due at the city's fiscal year-end. The city will send to the company a declaration form and tax chart.
d. Business Property Taxes
All businesses must pay annual property taxes on its property. Business property includes your purchased equipment, buildings, and supplies, but NOT inventory. The tax rate is the same as other property tax: 1 % of the assessed value. The County Assessor will send each company a property tax declaration form in February or March.
e. Franchise Tax Board
The California agency responsible for administration and enforcement of California corporate, business and personal income taxes is the Franchise Tax Board (FTB). The FTB sends its Guide to Corporations Commencing Business in California (publ. FTB 1060) to new corporations upon request. Additionally, forms in pdf format and other information are available at the FTB's website: www.ftb.ca.gov
- Insurance For Your Business
Owning a business can be expensive but it is essential to provide for insurance coverage, even when the cost of insurance seems excessive. The following are some basic forms of insurance:
a. Property Insurance
For theft, fire, flood or other natural disasters. Earthquake coverage is optional, but in California, not a bad idea.
b. Liability Insurance
Protecting your business against lawsuits is a sensible precaution when conducting business anywhere in the United States.
c. Business Interruption Insurance
Provides substitute income if your business is damaged from theft, fire or flood.
d. Health Insurance
Coverage for medical and/or dental expenses for employers as well as employees is a widely accepted practice of business in the U.S., and should always be calculated into business operating expenses when planning to hire employees.
e. Disability Insurance
Provides substitute income if a worker is disabled by a non-work related injury. The disability insurance program is operated by the State of California and funded through payroll deductions. The law requires that all employees participate. Sole shareholders may elect to be exempt from the program.
f. Unemployment Insurance
Provides substitute income if a worker is involuntarily laid off. The unemployment insurance program is operated by the state and funded through employer taxes. All employees, including sole shareholders, are required by law to be covered (see above, Employment Development Department.)
g. Workers Compensation Insurance
Pays for medical expenses if a worker is injured on the job. Private companies offer workers compensation insurance, however the law requires all employers to provide and pay for this insurance for their employees.
- Additional Permits and Regulations
a. Building Permit Fees
Any new construction or remodeling of business facilities may need to be inspected and approved by city (or county) building inspection departments. Building permit fees are based on an estimated valuation of new construction and/or improvements. Be sure to also inquire about additional local regulations, such as building, electrical, plumbing, use and fire permits.
b. Environmental and Health Regulations
Any business selling or handling food products for human consumption is subject to licensing and recurring inspection, usually by the county health services department. The State Department of Industrial Relations enforces labor and safety laws in California. Business owners intending to hire employees should make it a priority to contact Cal/OSHA (Occupational Safety and Health Administration) to make sure their company conforms to safety and health requirements.
III. IMMIGRATION ISSUES
For the foreign company or individual(s) who seeks to enter the U.S. market and implement a long-term business plan, immigration objectives, whether temporary on a non-immigrant visa or over the longer term with permanent residency, are an unavoidable concern. If the company intends to hire or transfer employees from outside the U.S., numerous and often lengthy steps must be taken to ensure that proper visas are issued for the worker and his or her immediate family members. The U.S. Immigration and Naturalization Service is the federal agency charged with the responsibility of administering the nation's immigration laws. In the best traditions of dealing with any other large bureaucracy, there are advantages to knowing the ins-and-outs of the processes.
Our firm has the expertise in representing international companies and foreign individuals in all aspects of employment based immigration visas, including employment visa (H1), intracompany transferee (L1), treaty investor/trader visa (E visa) and investor's visa (with investment projects starting at $500,000). We also represent clients in obtaining family based visas, lottery visas and US citizenship.
The information contained in this brochure is only intended to be an introduction to the numerous legal aspects and procedural steps to starting a business in California. Deborah Chew & Associates can provide knowledgeable and dedicated assistance to you to set up your business presence and relocate to the United States, at reasonable rates and with quality service, in incorporation, commercial law, immigration to real estate transactions.
Click here to review the
QUESTIONNAIRE FOR ESTABLISHING A CALIFORNIA CORPORATION
Click here to review the
INCORPORATION OF A CALIFORNIA COMPANY
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