Determining whether or not you’re a foreign corporation doing business in California or a foreign LLC doing business in California can be confusing — especially because the phrase “doing business” can be extremely ambiguous. We’re here to help clarify how California foreign entity registration works and when you may qualify for it.
Specifically, in this post we’ll help you understand whether or not your existing legal entity needs to file for foreign business registration in California.
This article is not for you if you have not incorporated your business. If you are interested in learning more about how and where to incorporate a business, check out our article on How To Incorporate A Startup.
This article is for you if you represent an existing entity incorporated in a state other than California that is unsure if they need to register to do business in California.
Below, we break down the common question “do I need to register my business in California?”
To start, registering as a foreign business or “qualifying” to do business in California means that your business entity is currently registered outside of the state of California and needs to register to “do business” within the state.
Understanding whether or not you are required to register to do business and file for foreign qualification in California depends on if you are “doing business” in the state. Of course, this leads to the ultimate question: “Am I doing business in California?”
The California Government “considers you to be “doing business” if you meet any of the following criteria. Those criteria are also outlined here.
Below, we dig into each of these bullets and provide a more thorough explanation for what they mean. If you meet any of the below criteria, you are “doing business” in California and are therefore required to complete a foreign business registration.
If you make money or intend to make money while physically located in California, you qualify to do business there.
For example, if you own a bagel store that makes bagels in Oregon, and take action to expand and open a new bagel store in California, you would now be doing business in the state of California.
Selling physical or digital goods online to customers located in California would not qualify you as doing business there, unless specific criteria are met which are discussed below.
If California is your principal place of business, you are qualified to do business there. For example, if your company’s headquarter office is in California, that is likely your principal place of business. Similarly, if your company is remote and has no offices, but is managed by the founders or executive team remotely from within California, it’s likely your principal place of business is there as well.
If you have remote employees throughout the country and none of your executive team is in California, it’s unlikely that your principal palace of business is there.
This could only apply if your business has sales in California. If your business does not have California based sales, you can ignore this criteria.
If sales that occurred within California exceed $610,395 or the sales that occurred within California account for over 25% of total sales, then your business needs to file for California foreign corporation registration.
For example, if you sell digital goods to two customers, each customer pays you $10,000 a year, and one of those customers is based in California, then you would be required to register to do business in the state because 50% of your sales are attributed to a California based customer.
This could only apply if your business owns property in California. If your business does not own property in California, you can ignore this criteria.
If the value of business owned property in California exceeds $61,040 or the value of business owned property in California accounts for over 25% of the total value of business owned property anywhere, then your business needs to file for California foreign corporation registration.
For example, if the business owns property in California valued at $50,000 and the business also owns property in New York valued at $50,000, then your business would be required to register to do business in the state because 50% of the total value of business owned property is attributed to California based property.
This could only apply if your business runs payroll for California based employees. If your business does not run payroll for California based employees, you can ignore this criteria.
If your business runs payroll for individuals in California, and that amount exceeds $61,040 a year or that amount accounts for over 25% of the total amount of business run payroll, then your business needs to file for California foreign corporation registration.
For example, if you run payroll for four individuals, each individual makes $25,000 a year, and two of those individuals are based in California, then you would be required to register to do business in the state because 50% of business run payroll is attributed to California based individuals.
California foreign LLC registration or corporation registration involves filings paperwork with the Secretary of State. The paperwork you need to file depends on your entity type. The Secretary of State provides guidance for the correct forms here. Ultimately, they suggest: “To ensure that all issues are considered and addressed appropriately, you should consult with private legal counsel prior to submitting qualification or registration documents to the California Secretary of State.”
Another important consideration when filing for California foreign entity registration is that the address you use will become part of public record and receive important legal notices from the state via mail.
If you do not have a California based address to meet these requirements, or receive important documents, we would recommend exploring Stable — a virtual address like Stable can be a great business address to use for California foreign entity registration.
Interested in learning more? Check out our website or schedule a time to chat.
At Stable, we provide permanent virtual addresses and mailboxes so you never have to worry about mail or changing addresses again. We’ll digitize all mail that you receive here, and you’ll be able to scan, forward, shred, (and even deposit checks!) from anywhere in the world.
Get started with Stable here if you’d like a virtual business address + mailbox in less than 3 minutes.
Disclaimer: Stable is not a legal or accounting firm, therefore we cannot provide legal or tax advice. You should consult legal and tax professionals for advice on how to meet ongoing obligations that apply to you and your company.