California is a notoriously unfriendly state for business. This reputation extends to business entities for professionals practicing in the state.
California is a state with a very unique view towards business. Most business entities, for instance, are required to pay an $800 fee for the “privilege of doing business” in the state. This fee is in addition to any other fees charged in relation to the formation or maintenance of the business.
Once you form a new business entity, you need to come up with a way to get money into it. This concept is known as capitalization or funding of the business entity.
At first glance, funding an entity seems fairly simple. Don’t the officers of the corporation simply open a bank account and deposit some money? Unfortunately, it is not that simple. The money has to come from somewhere, typically the shareholders.
Funding a new corporate entity is obviously a critical step, but how is it done. There are three primary methods, although one should check with applicable laws in your state to delineate which are available. Regardless, let’s take a closer look.
If you run practically any business these days, you should form either a corporation, limited liability company or other entity to protect yourself from liability. While this is true, most businesses do not realize there is a gap in the protection.
For the purposes of this article, I am going to group the traditional corporation and more recent limited liability company creation together as a corporation. They are actually very different entities, but both have the common characteristic of providing liability protections for the owners of the business, be they members or shareholders.
The word “foreign” carries connotations of something in a country other than one’s own. In the world of corporate law, of course, it has an entirely different meaning.
For the most part, corporate law falls into the bowels of state law. Put another way, each state writes its own rules and regulations regarding business entities. There is no federal law on the subject and none seems imminent regardless of how strange some of the state laws are.
