How to Qualify as a Foreign Business in California

If you own a business that was created in a state other than California, you will need to qualify or register that business in California if you want to do business there. Here is an overview of the rules on how to qualify your foreign (non-California) limited liability company (LLC) to do business in California.

What is a Foreign LLC?

For California purposes, if your LLC is formed in another state, then it is known as a foreign LLC in California. In other words, foreign doesn't mean from another country. Instead, it means your business was organized under the laws of another state. A domestic LLC, on the other hand, is one that is formed in the state where it is doing business. This is common usage throughout the United States. For example, an LLC formed in Arizona is a foreign LLC in Colorado.

Transacting Business in California

According to California's LLC Act, you are required to register your foreign company with the state of California if you are "transacting business" in California. What does this mean? Well, like most states, California's LLC Act does not specifically define the phrase "transacting business" in relation to foreign registrations.

However, state laws governing when foreign companies must collect state sales tax in their state provide some guidance on the issue. Under these laws, a business must have a physical presence in—or nexus with—the state in order to be required to collect state sales tax on sales to that state's residents. Generally speaking, physical presence and nexus are synonymous, and mean having:

• a warehouse in the state
• a store in the state
• an office in the state, or
• a sales representative in the state.

Certain exceptions may apply and the rules can get more complicated with things like Internet sales. Nevertheless, in general, if you have an office, a store, a warehouse, or employees in another state, you will need to qualify your LLC as a foreign company in that state. For more details, including some possible distinctions between physical presence and nexus, check Nolo's articles on Internet Sales Tax: A 50-State Guide to State Laws. You may also find some guidance from this California Franchise Tax Board webpage discussing rules for "doing business" in California.

Certain Activities Are Exempt

Like most states, California's LLC Act specifies certain activities that do not constitute transacting business in the state. The items listed include:

• defending or settling a lawsuit
• dealing with internal LLC affairs such as holding member or manager meetings
• having a bank account in the state
• having an office, agency, or persons in the state for handling your company's own securities
• selling through independent contractors
• soliciting or obtaining orders where the orders require acceptance outside the state before they become contracts
• creating or acquiring indebtedness, evidences of indebtedness, mortgages, or security interests in real or personal property
• securing or collecting debts
• conducting an isolated transaction that is completed within 180 days and is not one in the course of similar, repeated transactions; and
• transacting business in interstate commerce.

The LLC Act also indicates that this list is not necessarily exclusive; other activities also may be exempt. For the full, legal description of each of the listed items, check Section 17708.03 of the California Corporations Code.

If your LLC's only activity in California is one or more of the listed items, you should not need to register with the state.

Certificate of Registration

To register your business in California, you must file an Application to Register a Foreign Limited Liability Company (LLC) with the California Secretary of State (SOS). You can download a copy of the application form from the SOS website.

To complete the application, you must provide more or less the same information that you need to create an LLC in your home state. More specifically, for a California application for registration, you need to provide:

• the name of your LLC as registered in the state where it was organized
• if necessary, an alternate name that your LLC will use in California (necessary if your LLC's original name or something very similar is already being used by a California registered business, or the original name does not include words such as "Limited Liability Company" or an abbreviation such as "LLC")
• the state where your LLC was formed
• the date on which your LLC was formed
• a statement that your LLC currently is allowed to conduct business in the state where it was formed
• the name and street address of your LLC's registered agent in California
• a statement that the California Secretary of State will act as your LLC's registered agent if your LLC's appointed agent cannot be located or has resigned
• the street address of your LLC's principal office
• the street address of your LLC's principal office in California, if any
• the mailing address of your LLC's principal office, if different from its street address, and
• an authorized signature.

You must include a certificate of good standing with your application. The certificate must have been issued within the last six months by the agency where the LLC was formed (usually a secretary of state in the state where your LLC is organized).

You may include a copy of your application that you can receive back from the SOS with certification (for a $5 fee). You can file by mail or by dropping off the application in person. The basic filing fee is $70. Applications that are dropped off incur an additional $15 fee. For additional information, check the SOS's LLC filing tips webpage.

What Happens if You Don't Register?

If your LLC transacts business in California without authority, it cannot bring a lawsuit in the state. However, not being registered does not prevent your LLC from defending a lawsuit in California. Also, a member or manager of the LLC is not liable for the LLC's debts, obligations, and other liabilities solely because the company transacted business in California without a certificate of registration.

Registering a Foreign Corporation in California

If your business is organized as a corporation rather than an LLC, the rules and requirements for foreign qualification in California are similar. You will, however, have to use a different application form. See the California Secretary of State website for forms, information, and filing instructions for registering a foreign corporation in California.