Doing Business in CA? Be Sure to Register
Sometimes California-based entrepreneurs think that they can avoid CA registration fees and taxes by forming their business entities in another state. Usually, that belief is incorrect: If the entity is doing business in CA, then it must register with the CA Secretary of State, even if the entity was formed elsewhere.
So what constitutes “doing business” in CA? The term used in the Corporations Code is to “transact intrastate business”, which is defined as “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce” (Section 191(a) with respect to corporations, Section 17001(ap) with respect to limited liability companies).
Any foreign (non-CA) startup that is headquartered in CA – even if it is operating a website on servers located thousands of miles away – is likely to enter into “repeated and successive transactions” with suppliers, customers and other businesses that are located in the state and, thus, will need to register in CA. Indeed, registration is required before transacting intrastate business (Section 2105(a) with respect to corporations, Section 17451(a) with respect to LLCs).
Fortunately, the registration process is reasonably straightforward and not too expensive. The correct Secretary of State form must be completed and submitted with a certificate of good standing from the state where the entity was formed and the applicable filing fee.
Related posts:
- Why (not) form an LLC in Nevada?
- Why (not) Incorporate in Delaware?
- When “Doing Business” isn’t “Doing Business”
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.
Dana:
Wondering if our OR nonprofit corporation needs to file as a foreign corporation with the CA Secy of State when one of our employees moves to CA and will have a home office. He would not be doing anymore or less CA activities than he does now. He is moving for personal reasons not because our corporation wants to have a CA presence.
@Bev
As noted in the post, the test is whether, on behalf of your corporation, he will be “entering into repeated and successive transactions of its business in this state”. I cannot answer that question, but you should be able to.
I am starting a service web-based company. I currently reside in CA, but am considering forming my LLC in WY, DEL, or NV. Since I do not know where the main source of my client base will come from (i.e. I don’t know which state I will primarily get clients from) do I still need to register as a foreign entity with the state of CA?
Also, I am assuming that your answer to my question above will be that I must register with CA. Is there anyway to get around paying the wopping $800 annual franchise tax? So much money for someone that is just starting out…
@Kay
As stated in the post, the test for doing business in CA is whether your entity is “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce”. I do not know the details of your business; however, it is common for entrepreneurs who reside in CA to satisfy the foregoing test and, thus, find themselves obligated either to form the entity in CA or to register it in CA as a foreign entity. I know of no way around the $800 annual franchise tax when it applies.
Thanks for the quick response. Would it be worth forming as a corporation (via DEL, WY, or NV) at least for the first year of my operations — as a way to avoid the $800 franchise tax? I’d like to note that I will for sure be moving out of the state of CA by the end of 2012.
@Kay
I’m afraid that I do not understand your question. As discussed above, the obligation to pay $800 depends on whether you are entering into repeated and successive transactions in CA, not on where you form the corporation.
I have a home business that I am forming in Delaware and live in California. When I register as a Foreign business in California I will have to list my home address as the “main office” of business. Is this address going to be made available to the public or is this only for internal purposes at the Secretary of State. I am curious because I don’t really like the idea of my home address being available for anyone and everyone. I am asking because I know that if my business were to be looked up in Delaware, only the address of my registered agent would be made available.
Also, would I have to list my home address as the address for the LLC’s headquarters as well?
@Steven
Some of the Form LLC-5 information, including the main office in CA, will be available in the Secretary of State’s online database. In addition, the entire Form LLC-5 will be available to anyone who is willing to pay the Secretary of State to provide a copy.
That is part of the price that you pay for the privilege of forming a limited-liability entity in CA. If you do not want to disclose your home address, rent a virtual office.
I am a partner in an LLC organized in NY. For personal reasons I have moved to CA, and my partner has as well. I doubt there will be physical presence in NY again.
There seem to be a lot of steps involved in moving the company (we already have been tapped on the shoulder by the city where that rental office is) … if we go thru and set up as a foreign corp, will it make sense at some point to re-incorporate or do we just have to grin and bear it and pay franchise tax in NY (which is minimal for LLCs)?
If we maintain a mailing address in NY does that mean NY will consider us “there” even if physically not? We want our “local” clients there to consider us as local, but on the other hand, we would like to simplify our legal and tax obligations.
It appears that your decision will be largely tax-driven, so you need to consult with a tax advisor who is familiar with multistate (especially CA and NY) entities (sorry, I do not provide tax advice).
You may be interested in When “Doing Business” isn’t “Doing Business”, which discusses what “doing business” means for three different purposes in CA and in NY.