The following is a discussion of some annual corporate compliance considerations for officers and directors of California Corporations, with a focus on reporting requirements, franchise taxes, and internal corporate agreements.
California Corporate Compliance Requirements
In California, corporations have a series of annual requirements that they must fulfill with the California Secretary of State, the governing body that oversees California Corporations.
Every regular California Corporation must undertake the following steps pursuant to the California Corporations Code, some of which must be performed on an annual basis:
- Adopt Bylaws (§212)
- Maintain a copy of the Bylaws at the California corporate office (§213)
- Issue stock
- Hold an annual meeting of Directors
- How an annual meeting of Shareholders
- Pay annual filing fee
- Follow annual reporting requirements
Some of the most important annual reporting requirements include filing the annual Statement of Information (which can be filed online here) and paying the required franchise tax. Moreover, it can also be beneficial to take this opportunity to do some corporate housekeeping by reviewing your corporate agreements.
Annual Statement of Information
Every year your California Corporation must file an Annual Statement of Information (SI-200), which is a reporting of your addresses, officers, directors, & registered agent.
Franchise Tax
A California Corporation must file an Annual Franchise Tax Return with the Franchise Tax Board. Both C-Corporations and S-Corporations are subject to franchise taxes. For franchise tax purposes, California C-Corporations are taxed at a rate of 8.84% of net income and S-Corporations are taxed at a rate of 1.5% of net income. Moreover, California imposes a minimum franchise tax of $800, but this requirement is waived for first-year corporations.
These franchise taxes are due on the 15th day of the 3rd month for the previous year’s tax year, or March 15th for calendar year filings.
Corporate Agreements
While undertaking your annual corporate requirements, you may also find this a good opportunity to review your corporate agreements as a part of annual housekeeping and compliance. This allows you to review all of the agreements that are attached to your business, including shareholder agreements, employee agreements, and customer agreements in particular.
For shareholder agreements, there is often a provision included in the text referring to an annual update of the value of the business. While these provisions can be cumbersome and may not always be advised when forming a business, they nonetheless need to be considered for annual compliance purposes.
Employee agreements typically focus on those in sales roles and center on non-soliciation and non-compete clauses. If these have been included amongst the company’s employment agreements, they need to be updated as appropriate so that they are still tailored to the employee’s job duties and adequately broad in both time and scope. Other employees may have confidentiality agreements in place, and even a cursory review of these may be beneficial in ensuring that they are up-to-date.
Lastly, customer agreements may need to be updated significantly, especially in the event that a second-hand or online template was used in the first place without the help of legal counsel and the business has changed drastically over the preceding years since the agreement terms were first adopted. Often times, the nature of the business and the service offered have changed in such a way that without an update to the customer agreements, any issues pertaining thereto only come to light when there is a problem.
All of these agreements, as well as any concerns related to annual corporate compliance, can be presented to your Business Law attorney for review and counsel as you complete your annual corporate housekeeping.
ODGERS LAW GROUP specializes in business formation and the development of strategic business plans aimed to help maximize protection and reduce tax liabilities. The firm also handles matters of compliance in Corporate Law and can be an asset to your organization as it navigates the corporate regulatory environment. To learn more about business law or to schedule your free consultation with Mr. Odgers, contact us by e-mail, call us at (858) 764-2448, or schedule your appointment online here.
