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.
I still get questions about creating an LLC or corporation in NV, DE, etc because they heard about the benefits of filing there. As you said, if they are based in CA, they still have to register in CA as a foreign entity. I remember researching this issue for a client and the example the CA SS gave was that even for rental property located in another state, if the single member LLC banked in CA for that property, then that is considered doing business in CA in which they would have to register as a foreign LLC.
Now I’m going to end my day on a high note and read the latest xkcd comic by clicking your link :).
Hi Dana, I had asked a question on avvo.com that your responded to pointing me here, so I thank you.
http://www.avvo.com/legal-answers/what-is–doing-business-in-ca–really-mean–354640.html?cm_mmc=Avvo-_-Notification-_-Answers_Notify-_-question
However, I’m still not clear.
If a Canadian corporation has a partner based in California that works from home doing software programming using his own equipment (not the companies) and we don’t have a physical product nor location within California and we are selling our product worldwide on the internet, do we still need to register in California? The idea is that the Canadian corporation would treat all foreigners as subcontractors.
Our goal is to form a business entity and keep it simple. If possible, we would prefer not to have to register/qualify entities all over the US.
@Morness
The additional information that you have provided makes your question easy to answer.
I was misled because I thought you used the term “partner” to refer to one of the owners of your business, which I assumed was a partnership. In your Avvo Q, you did not state that your business would be a corporation.
If the individual in CA is an independent contractor, then his software-development activities in CA are *not* imputed to your Canadian corporation; there is no need for the Canadian corporation to register in CA because it is not transacting intrastate business.
Hi Dana, you responded to my post on avvo.com also. I was the one talking about the Delaware LLc.
I was trying to understand the link you posted about doing business in California.
If my entity is based in Delaware and banks in Delaware, why is it doing business in California any more than anywhere else.
Is it because the owner of the LLc lives here?
ps. I did want to add that we are selling a product over the internet and aren’t involved in manufacturing, warehousing or operating any kind of store in California.
@paul
I didn’t write that your LLC *is* doing business in CA – I wrote that the issue is *whether* your LLC is doing business in CA, the test being “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce”.
I see what you are saying, but isn’t Amazon (the company I want to sell through) entering into successive transactions, if they sell to people in California?
If my supplier, who isn’t affiliated with me, is in California, does that constitute the sort of transactions they are talking about?
The way it sounds, I might have to collect sales tax in many states.
Very confusing
@paul
I’m not discussing sales tax (I am not a tax expert); I’m discussing whether your entity needs to register with the Secretary of State as a foreign entity. (Those are two different issues with different tests.) For the issue I am discussing, Amazon’s actions are irrelevant. The Q is whether your LLC has repeated and successive transactions in CA.
Hi Dana,
Does one need to file as a foreign corporation in other states if I am incorporated in CA. Planning to sell food products, but a lot will be sold online as well so do I have to register in all states. One partner is planning to live in CA and the other in Pennsylvania, does that mean we have to register in PA?
Thanks
@Lalit
Unfortunately, I am not familiar with Pennsylvania law, so I cannot answer your question.