California law allows a business to incorporate and be identified as its own legal entity. After incorporation, buying and selling property, agreeing to contracts and exercising legal rights are considered acts of the business itself and not its owners. In California, the process of incorporation is begun by filing with the Secretary of State in accordance with particular guidelines.
Benefits of Incorporation in California
An incorporated business enjoys certain advantages, the most important being a limit of liability for the shareholders. The most shareholders can lose is the amount they invest in the business. Had the business remained unincorporated, owners risk losing their personal property should the business become unable to satisfy its liabilities. Also, creditors in the Castro Valley area usually prefer to deal with corporations, since a loan is an investment more easily evaluated when the credit-worthiness of various owners is not an issue. Finally, a corporations charter requires that ownership be divided into stakes or "shares" of stock, all of equal size. This makes the process of transferring control much more practical.
Costs of Incorporation
These benefits come at a price. First, incorporation in California may require a filing fee. Second, a corporation pays taxes just like any other entity. Disbursements to the owners of the corporation are also taxed as individual income, so this means earnings might be taxed twice. But this double taxation can be avoided with proper planning and help from a local Castro Valley lawyer.