“Doing Business” Requires More than an Employee and an Office
In Doing Business in CA? Be Sure to Register, I wrote that an out-of-state corporation that “enter[s] into repeated and successive transactions of its business in [California] other than interstate or foreign commerce” must register with the Secretary of State as a foreign corporation, and that a penalty for failing to do so is being precluded from maintaining actions in California courts. A recent case in the US District Court for the Northern District of California (Jarzab v. KM Enterprises) provides an example of what does not constitute “repeated and successive transactions”.
Plaintiffs J.T. Jarzab and J.R. Jarzab sued their former employer, KM Enterprises, Inc. (“KME”), an Illinois corporation, alleging breach of contract and wage-and-hour violations. KME filed counterclaims for conversion, breach of fiduciary duty, constructive fraud, and unfair competition.
Plaintiffs sought dismissal of the counterclaims, stating that (a) KME failed to register as a foreign corporation, thus (b) it cannot maintain claims against the plaintiffs.
The court disagreed, because plaintiffs alleged merely that KME had leased an office and had employed J.T. Jarzab, but provided no evidence of Jarzab’s duties. Thus the court could not conclude that KME had entered into repeated and successive transactions within California. (The court noted it is possible that KME had entered into repeated and successive transactions, but there was no evidence to that effect based on the case record so far.)
Bottom line for out-of-state corporations: If you have an employee and a leased office in California, you may not need to register as a foreign corporation – but you should seek legal counsel to provide appropriate guidance.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
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.
Business Entities, Employment, Litigation
3/24/2013 | 1:50 pm Permalink
So, let me be really clear on this point, If you live in CA, work out of a home office or leased office, are working as an partner in an LLC from any other state, AND all of your customers are NOT in CA….you DO NOT have to file in CA as a foreign LLC?
3/24/2013 | 2:01 pm Permalink
One cannot necessarily draw that conclusion. As stated in the post, the test is whether the entity enters into “repeated and successive transactions” within the state – which could be the case even in the situation you have described.