California Foreign Qualification
The state of California is home to approximately 4.1 million small businesses including domestic and foreign entities and is considered the primary drivers of economic growth. One of the reasons to establish foreign LLC in California is that the state provides a business platform that encourages new investment while reducing the overall cost of making a business operational. This has been made possible through the implementation of various incentives, programs, and zones like the California Opportunity Zones, Foreign Trade Zones (FTZ), and financing programs among others. A California foreign LLC registration will enable you to access the incentives and programs and also open the doors to apply for several grants thus reducing the initial cost of setting up your foreign company.
What is California foreign qualification?
Foreign qualification California refers to the registration of your new business with the office of California secretary of state. Once you are foreign qualified, you will be able to operate your business legally and pursue any growth opportunities within and across the state borders without the need for incorporating or forming a new business entity. The process of California foreign corporation registration is considered as the first step towards expanding your existing business to California or any other state.
The process of registering foreign corporations in California or foreign LLC may be different from that of other states and the regulations are governed by the 2019 California Code, Corporations Code. Let’s look at an example to understand this:
If you have formed a domestic LLC in Texas then it will be considered as your home state. Now, if you plan to expand your operations to California then you will be required to apply for California foreign LLC registration governed by CA Corp Code § 17708.02 (2019) so that you can foreign qualify and make your LLC operational in the state.
Doing business in California
The type of business you are planning to form will be governed by Title 1 and Title 2.6 of the California Code e.g., foreign corporations in California are governed by Title 1, Division 1, Chapter-21 of the California Code. If you are wondering what doing business in California really means then it simply refers to the practice of conducting business activities or transacting business of a company in the state of California when the said company was actually incorporated or formed in another state. In such a scenario, California foreign corporation registration will be necessary.
- If your business engages in any form of transaction for the sole purpose of achieving financial gain or profit within the state of California
- If your company is organized or has been commercially domiciled in California
- If your California sales exceed the threshold amount or 25% of total sales is more than $610,395
- If your California real and tangible personal property exceed $61,040
- If your California payroll compensation exceeds $61,040
Let’s look at an example to understand this:
A business corporation ABC Inc. is an out-of-state corporation that sells tangible goods through e-commerce and qualifies for protection under Public Law 86-272 (15 USC Section 381). In the taxable year 2020, Corporation ABC Inc. has recorded sales of over $1,000,000 but has no payroll or property in California. Such a Corporation will be considered to be doing business in California although due to protection under PL 86-272, it will not be subjected to California franchise tax.