Does your out-of-state corporation need to register as a foreign business in California? This blog will help you answer this question. We’ll also help you clarify how California foreign entity registration works and when you may qualify for it.
Note: If you’re a new business that hasn’t been incorporated yet, start with our resource on how to incorporate a startup.
When a business expands its operations or intends to conduct business in a new jurisdiction, it is considered a foreign entity in that specific place.
Your business is considered a “foreign business” in California if it’s incorporated in any other state or country, but you want to do business within California. To do this, you’ll need to register as a foreign entity.
Registering as a foreign business typically involves filing paperwork, hiring a registered agent in California to accept legal documents on your business’s behalf, and paying any required fees, but first we’ll unpack the legal meaning of “doing business” in California.
Understanding whether you’re required to register to do business and file for a foreign qualification in California depends on whether you’re doing business in the state. The California Government considers you to be doing business if you meet any of the following criteria:
If you make money or intend to make money while physically located in California, you qualify to do business there.
For example, let’s say you own a bagel store that makes bagels in Oregon. You decide to pursue intrastate business and open a new bagel store in California, so now you’re “doing business” in the state of California.
Selling physical or digital goods online to customers located in California doesn’t qualify as doing business there unless specific criteria are met (which we’ll discuss below).
If California is your principal place of business, you are qualified to do business there.
For example, if your company headquarters is in California, that’s considered your principal place of business. Similarly, suppose your company is remote and has no offices, but is managed by the founders or executive team remotely from within California. In that case, 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 to qualify as your principal place of business.
This criteria only applies if your business has sales in California. If your business does not have California-based sales, you can ignore this criteria.
If your business’s California-based sales exceed $690,144 (in 2022) or account for over 25% of your total sales, then your business needs to file for California foreign corporation registration.
For example, let’s say you sell digital goods to two customers. Each customer pays you $10,000 a year, and one of them is based in California. In this case, you’d have to register to do business in the state.
Why? Because 50% of your sales are attributed to a California-based customer. However, if you sell $10,000 a year to 10 customers with one based in California and the other nine in your home state, you wouldn't need to register because your California-based sales would only be 10% of your total sales.
If your business doesn’t own property in California, you can ignore this criteria.
If the value of your business-owned property in California exceeds $69,015, or the value of business-owned property in California accounts for over 25% of your total business-owned property, then your business needs to file for California foreign corporation registration.
For example, say your business owns property in California valued at $50,000. You also own property in New York valued at $50,000. In this case, you’d have to register to do business in California because 50% of your business-owned property is California-based.
If your business does not pay California-based employees, you can ignore this criteria.
If your business runs payroll for individuals in California, and that amount exceeds $69,015 a year, or that amount accounts for over 25% of your total payroll, then you must register as a foreign corporation in California.
For example: You run payroll for four individuals. Each person makes $25,000 a year, and two of those individuals are based in California. You would be required to register to do business in the state because 50% of the business-run payroll is attributed to California-based employees.
Some activities may seem like "doing business," but not all of them require registering as a foreign entity in California. There’s a distinction between "transacting" and having a mere presence or participation in passive activities in the state.
Let’s look at a few activities your business may conduct in California without needing to register as a foreign entity.
You can visit California for certain business purposes without being required to register as a foreign entity. Examples of this include attending trade shows, holding internal business meetings, board meetings, or company retreats.
Having a mailing address or a P.O. Box in California doesn't constitute a need for foreign qualification. In addition, if a business uses independent contractors for sales without establishing a direct presence or control, it may not require registration.
For example, if a sunglasses manufacturer solely uses California-based independent contractors to market their line to retailers, the company doesn’t need to register as a foreign entity.
Activities related to debt collection or holding debt agreements in the state aren’t usually considered transacting business and don’t require registration.
For example, if a Georgia-based business holds a portfolio of consumer debt agreements all over the country, it wouldn’t be considered a transacting business in California and wouldn’t need to register.
If you have legal claims in California but don’t have a significant business presence there, you may not be required to register your business as a foreign entity — as long as your activities are limited to defending the legal matter. Participating in legal proceedings or defending a lawsuit or legal claim in California does not equate to transacting business in the state.
Having a bank account in California alone generally doesn't qualify as doing business. It’s considered a passive activity because it doesn’t constitute a physical presence, revenue generation, or regular business transactions, and so it doesn’t require you to register your business as a foreign entity in California.
Businesses that meet the registration criteria but fail to register as foreign entities in California may face a range of legal and financial repercussions:
Once you’ve determined your business must be registered as a foreign entity, you’ll need to take action. We’ve laid out a step-by-step plan for handling the process.
As we mentioned above, transacting business in California may include conducting business, owning property, having a presence, or paying California employees. Business leaders should consult with tax or finance professionals or seek legal advice if they’re unsure whether they must register.
See if the business name you used in your home state is available by doing a California Business Entity Search. You can request a California name reservation to hold your chosen name for a limited time. Name reservations come with a $10 filing fee. If the name is already taken, you’ll need to choose a different name. This may be a “doing business as” (DBA) name, otherwise known as a fictitious business name (FBN).
Acquire a current Certificate of Good Standing from your company’s home state to verify your business does exist and is in good standing with the state. The certificate needs to be issued within the last six months by an authorized public official.
Before qualifying to do business in California, a company or out-of-state LLC must file a foreign registration statement with the Secretary of State. The form for foreign corporations is the Statement and Designation by Foreign Corporation, while the LLC form is the Application to Register a Foreign LLC (Form LLC-5).
These forms include the contact person’s information along with company information like its name (or alternate name), street address for your principal office, and service of process.
Hiring a California-based registered agent is another requirement for foreign entities doing business in the state. A registered agent is authorized to receive mail, tax, and legal correspondence on your business’s behalf, making them an essential part of the registration process.
If you have a location in California, you might decide to be your own registered agent. However, if your company doesn’t have a California-based employee, you can always hire a third-party registered agent to operate on your behalf. As a Stable business address customer, you can easily add registered agent services to your plan for $25 per month.
You must file your Foreign Registration Statement and Certificate of Good Standing along with a $100 filing fee ($70 for LLCs).
Keep in mind that California corporations must file a Statement of Information within 90 days of registering — and every year after that — to maintain compliance. California corporations must also pay an $800 franchise tax fee annually to the California Franchise Tax Board.
Tax requirements vary according to the nature of your business, sales volume, and whether your company is physically present in the state.
Whether you own a company that’s expanding physically into California, employ California residents, or have customers in the state, you might need to register your LLC or corporation as a foreign entity. Following the guidelines above will keep your business compliant and help you avoid costly fines.
While the registration process can be cumbersome, Stable can make certain aspects much simpler. If you’re registering your business as a foreign entity in California, you’ll need a reliable virtual address and mailbox to streamline mail operations.
With Stable virtual mailboxes, it’s easy to open, forward, or shred mail — no matter where you’re located. Stable offers all these, plus registered agent services and exceptional customer support.
Let us support your business’s expansion — team up with Stable today
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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.
