A corporation is an entity formed under state civil law that is a separate legal entity owned by shareholders. A corporation is generally taxed under Internal Revenue Code, Subtitle A, Chapter 1, Subchapter C, unless it elects to be taxed under Subchapter S. Corporations taxed under Subchapter C (C corporations) are taxed annually on their earnings, and the shareholders are taxed on these earnings when distributed as dividends. If the corporation is a service corporation by an employee-owner, see FTB 1123, Forms of Ownership, for more information regarding personal service corporations.
- A corporation must register with the California Secretary of State before conducting business operations and file appropriate paperwork.
- A corporation must create bylaws (e.g., how the corporation will operate) that cover items such as stockholder meetings, director meetings, number of officers, and their responsibilities.
- If formed as a corporation, the owners of the corporation are not liable for the losses of the businesses and creditors may only look to the corporation and the business assets for payment.
- A separate bank account and separate records are required.
- The owners have ultimate control of the corporation, but must elect directors who in turn elect officers for the company. The directors make the major decisions, while the officers make the day-to-day decisions.
- A corporation’s life is perpetual in nature.
- Ownership is easily transferred through the sale of stock, and new owners can be easily added by the issuance of additional stock. For entities that are not civil law corporations, the ownership interests are generally treated as "shares of stock" for tax purposes.
- This form of ownership is more costly to set up and maintain than a sole proprietorship or partnership. Consult an attorney for guidance on setting up your corporate entity.
- C corporations are subject to the annual $800 minimum franchise tax, see Filing Guidelines for more information.
- Corporations taxable as a C corporation that have California source income, doing business in California, or organized in California, or registered with the California Secretary of State, must file Form 100, California Corporation Franchise or Income Tax Return. Furthermore, every corporation that is doing business in California, or incorporated in California, or registered to do business in California with the Secretary of State, must pay the annual minimum franchise tax of $800.
- The return due date is the 15th day of the 3rd month after the close of the taxable year.
- The minimum franchise tax ($800) is due the first quarter of each accounting period and must be paid whether the corporation is active, inactive, operates at a loss, or files a return for a short period of less than 12 months. The minimum tax is waived on newly formed or qualified corporations filing an initial return for their first taxable year. However, any first-year net income is still subject to the 8.84 percent tax rate.
- Every corporation that is doing business in California or has California source income is taxed on its net income at a rate of 8.84 percent. See tax rates table for complete list of tax rates.
- Corporations doing business or deriving income from in and out of this state will use Schedule R to determine the income subject to tax in California.
- To determine if you are doing business in California, see Doing Business Rules in California.
- The estimated tax is payable in four installments as follows:
- 30 percent for the first required installment due April 15.
- 40 percent for the second required installment due June 15.
- No estimated tax payment is required for the third installment due September 15.
- 30 percent for the fourth required installment due December 15.
See Instructions for California Form 100-ES, Corporation Estimated Tax, for additional information and applicable rates.
- Corporations complete Form 100-ES to report their estimated taxes.
- Shareholders may have to make estimated tax payments for their own reporting purposes.
- Withholding is a prepayment of California state income tax. A corporation is considered a withholding agent if they control, receive, have custody of, dispose of, or pay California source income. Get Small Business Withholding Tool | PDF version.
- A withholding agent is required to withhold from all payments or distributions of California source income made to a nonresident payee unless the withholding agent receives authorization from us for a waiver or a reduced withholding amount. Withholding is optional, at the discretion of the withholding agent, on the first $1500 in payments made during the calendar year.
If a corporation is required to withhold and remit backup withholding to the Internal Revenue Service, the corporation is also required to withhold and remit to Franchise Tax Board, except for instances that are specifically excluded for California purposes. For more information about withholding, see FTB 1017, Resident and Nonresident Withholding Guidelines..