How to Register a Business in California

By Paul Sponaugle Tuesday, March 13, 2018

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 are:

  • incorporated or organized in California
  • foreign qualified or registered to do business in California
  • 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.

"Doing Business" In California

The information above still doesn't define exactly what "doing business in California" means. 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.

Live Chat Now To Foreign Qualify

 

Learn more: Foreign Qualification for LLCs and Corporations

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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There is 1 comment left for How to Register a Business In California

Terry Campbell said: Friday, February 7, 2020

I live in California and started a drop-shipping online store with no employees, just myself. I am now at the stage of registering my online store but have a few questions: 1 If I register the store as an LLC, in California does "LLC" need to be attached to the online store name and the URL? 2 Do I need an EIN etc? I have no idea where to start. 3 If I do not go ahead with it as an LLC, what type of registration do I need to do? 4 Someone had mentioned registering the business in Delaware or Nevada, is this a good idea? Thank you. Terry Campbell

HBS Staff replied: Friday, February 7, 2020

Thanks for the questions, Terry. Our team will reach out by email to assist you further.

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