How to Register a Business in California

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how to register a business in californiaWe are often asked, "If I incorporate a business that will be located in California and will be strictly online, with no principal office location, do I still have to register to do business in California?" 

Anyone who has done business in California knows why someone may ask that question: taxes.

Before you even make your first sale, the California Franchise Tax board states that all corporations and LLCs are required to pay an $800 Franchise Tax if they:

  • incorporated or organized in California
  •  foreign qualified or registered to do business in California
  • are doing business in California, whether or not they incorporated, organized, qualified or registered under California law

Furthermore, business entities are required to pay the minimum Franchise Tax whether they are active, inactive or operating at a loss.

However, this still doesn't define "doing business in California." Through 2010, doing business in California was broadly defined as "actively engaging in any transaction for the purpose of financial gain or profit." It was a pretty vague definition, to say the least.

Since 2011, a business entity is considered to be doing business in California if it meets one of the following criteria:

  • actively engaging in any transaction for the purpose of financial gain or profit
  • organized or commercially domiciled in the state. (i.e., the state is the principal place from which the trade or business directed or managed)
  • California sales exceed either $500,000 (annually; adjusted for inflation) or 25 percent of total sales (sales include sales made by an agent or independent contractor of the entity)
  • California real property and tangible personal property exceeds either $50,000 (annually; adjusted for inflation) or 25 percent of its total real property and tangible personal property
  • California compensation exceeds either $50,000 (annually; adjusted for inflation) or 25 percent of the total compensation paid by the entity

Although the new definition was written to include the original definition of doing business, the added tests make it clear that if your company is a corporation or LLC generating income in California or maintaining tangible property in California, you are indeed doing business in California.

Therefore, you will indeed have to register a business and file for Foreign Qualification in California.

Please visit our Foreign Qualification page for more information and to foreign qualify your LLC.

 

READ MORE: How It Works: Delaware LLC Doing Business in California

 

More By Paul Sponaugle
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