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). A foreign entity that conducts intrastate business without registering is subject to financial penalties and is precluded from maintaining in California courts actions arising from such business (Section 2203 with respect to corporations, Section 17456 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.
- Why (not) form an LLC in Nevada?
- Why (not) Incorporate in Delaware?
- When “Doing Business” isn’t “Doing Business”
- “Doing Business” Requires More than an Employee and an Office
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.