Do You Own a Foreign Business Operating in California? You Might.

Posted by Mohsen Parsa | Jan 19, 2021 | 0Comments

Foreign? No. I'm an American

Under California law, foreign doesn't mean a foreign country. It simply means a business that was created in a state other than California, and if you want to do business in the Golden State, you need to qualify or register your business in California.

By the same token, a “domestic” business is not simply any business headquartered in the United States – it's one that was created in California.

(By the way, this is the same language other states use, too. A domestic business in Colorado is one that was started in Colorado, and a foreign business there is one that was established in, say, neighboring Wyoming.)

The California law requires all foreign entities to register with the California Secretary of State if they are conducting business in California.

What Counts as Conducting Business?

According to California law, if you are “transacting business” in California, your business has to be registered as a foreign company with the state of California. Which begs the question, what does “transacting business” mean?

Though the law isn't totally clear, in general, you are conducting business in California if you have any minimum contact with the state such as a (1) physical location like a warehouse, store, or office, (2) if any of your business transactions occur in California, or (3) if you have any employees working in the state even if your principal place of business is located in another state.

How to Register

To qualify or register a corporation or LLC in California, you need to file an Application to Register a Foreign Limited Liability Company (LLC) with the California Secretary of State.

You will need to provide much of the information you used to create an LLC in your home state, such as:

  • The name you registered your business as in the state where it was organized and, if different, the name your business will use in California.
  • The state where your business was formed and the date on which you formed it.
  • The street addresses for your business's principal office and principal office in California, if you have one.
  • The name and street address of your business's registered agent in California and a statement that the California Secretary of State will act as your registered agent if your agent cannot be located or has resigned.

You will also need to include a certificate of good standing, issued within the last six months by the secretary of state in the state where your business was formed.

Several situations are exempt from registering a business in California, including:

  • selling through independent contractors
  • soliciting or obtaining orders where the orders require acceptance outside the state before they become contracts
  • defending or settling a lawsuit
  • securing or collecting debts
  • having an office, agency, or persons in the state for handling your company's securities
  • dealing with internal LLC affairs such as holding member or manager meetings

The legal issues get a little tricker if you only conduct internet sales in California. In that case, you should discuss your specific situation with a California attorney who understands the pertinent laws. The consequences of failing to register make it worth your time to find out where your business stands.

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