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We 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:
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:
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.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.