Foreign Qualification in California
California is one of the strongest markets for new businesses and is backed by robust infrastructure and a continuously growing economy. If you already own a business outside the state and want to expand your market and reach the San Francisco Bay Area then your company will have to undergo foreign qualification in California. This article will focus on certain key areas of California foreign corporation registration or LLC registration by providing relevant information on how the California foreign qualification process really works.
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.
Along with the foreign qualification in California, you will be required to apply for and obtain business licenses or permits, hire and maintain a California registered agent like IncParadise, and also maintain annual compliances as required by the state of Texas as well as California.
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.
According to the California Franchise Tax Board (FTB), your company will be considered to be “doing business” in California if you are executing any of the following:
- 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.
California Foreign Qualification Process
If you have an established business in any other state like Delaware or Wyoming and want to expand your business activities to California then you will need to undergo foreign qualification
in California. The process for foreign qualification will vary according to the type of business. For example, California foreign LLC registration and fee will be different from that of a corporation. The California foreign qualification process is important and failing to foreign qualify can lead to penalties and prosecution. An entity may be subjected to a penalty of $20.00 per day for unauthorized intrastate business transactions. The entity may even be prosecuted by the California Attorney General and such an entity may be required to pay an additional penalty.
California Foreign Corporation Registration
If you are planning to form a foreign corporation in California then you will need to obtain a certificate of qualification from the office of the Secretary of State. This certificate permits an entity to transact intrastate business. The following steps will help you to identify the requirements for California foreign corporation registration.
- Name Registration: The first step towards foreign qualification in California is to choose a name and check availability. If the chosen name is available then you will need to register the corporate name with the office of the Secretary of State, Business Programs Division, pursuant to CA Corp Code § 2101 (2019). The fee for registration of a corporate name is $50. You will be required to also file a “Submission Cover Sheet” along with the name registration paperwork. If the chosen name of the foreign entity is not available for use in California then the entity will have to qualify using an assumed name.
- Registered Agent: An important aspect of California foreign corporation registration is designation of a registered agent for the service of process pursuant to CA Corp Code § 2102 to 2105 (2019). You can hire IncParadise as your California registered agent as we possess experience and expertise in foreign qualification in California and can help you qualify for the same.
- Certificate of Good Standing: It is also known as the certificate of existence or entity status letter depending on the state your corporation is registered in. You will require a Certificate of Good Standing from your home state or state of incorporation and will be submitted along with foreign qualification in California paperwork.
- Foreign Corporation Qualification: If you want to apply for California foreign corporation registration by yourself then you need to download, fill, and submit the Statement and Designation by Foreign Corporation form. It has to be submitted with the office of the California Secretary of State. You have to submit a current Certificate of Good Standing with the form along with a fee of $100 for foreign stock corporations.
Do you want to form a California Foreign Corporation?
California foreign LLC registration
Are you thinking of setting up a foreign LLC in California? If yes, then you will need to obtain a certificate of registration from the office of the Secretary of State. This certificate permits the foreign limited liability company to transact intrastate business. The following steps will help you to identify the requirements for California foreign LLC registration.
- Name Registration: The first step towards foreign LLC in California registration is to choose a name and check if it is available. The chosen name should be distinguishable in the SOS records from names of other limited liability companies in the state. If the chosen name is available then you will need to register the LLC name with the office of the Secretary of State. A name reservation is not necessary for California foreign LLC registration but you can apply for the same with the office of the Secretary of State pursuant to CA Corp Code §17701.09(a) and CA Corp Code § 17708.05 (2019). The LLC name can be reserved for a period of 60 days and the California SOS will issue a certificate of reservation for the same.
- Registered Agent: An important aspect of foreign LLC in California registration is designation of a registered agent for the service of process pursuant to CA Corp Code § 17708.02 (2019). IncParadise can be your California registered agent as we have the expertise and experience towards ensuring help with your California foreign LLC registration.
- Certificate of Good Standing: It is also known as the certificate of existence or entity status letter depending on the state your corporation is registered in. You will require a Certificate of Good Standing that has been issued within 6 months by a government agency in the state of formation. The certificate has to be submitted along with foreign qualification in California paperwork.
- Foreign LLC Qualification: If you want to apply for foreign LLC in California qualification by yourself then you need to download, fill, and submit the Application to Register a Foreign Limited Liability Company (Form LLC-5). It has to be submitted with the office of the California Secretary of State. You have to submit a current Certificate of Good Standing with the form along with a fee of $70. You can also avail of expedite services for California foreign LLC registration that are valid for documents being submitted in person (drop off) to their Sacramento office. There is an additional non-refundable $15 fee for counter drop off.
Do you want to form a Foreign LLC in California?
Need Any Assistance in Applying for California Foreign Qualification?
If you already have an LLC or corporation in any other state and if you are planning to expand to California then you will need to undergo the process of foreign qualification in California. As one of the leading registered agents in California, IncParadise can assist you with the process of California foreign qualification and also assist you with the process of incorporation in California.
We can also help you to acquire a Certificate of Good Standing from your home state and provide you with additional services that will ensure you are in compliance with all requirements pertaining to foreign qualification in California. We also provide foreign qualification services in all 50 states, which will make it easier for you to expand your business across all 50 states in the USA.