California Foreign LLC Registration
A California Foreign LLC refers to a business that has been created in a state other than California. If you wish to do business in California, the business needs to be registered in the state.5 min read
A California Foreign LLC refers to a business that has been created in a state other than California. If you wish to do business in California, the business needs to be registered in the state. In this context, “foreign” doesn't mean another country, just another state within the U.S. A business that was organized in the state where it does business is referred to as a “domestic LLC.”
California's LLC Act requires foreign LLCs to register with the state of California if they are transacting business within the state. Although this is not specifically defined, determining when state sales taxes must be collected helps to answer this question. When a business has a physical presence in the state, it must collect sales tax on its sales to residents of that state.
Determining Location of Physical Presence
You can assume a business has a physical presence if the following factors are true:
- The business has at least one sales representative within the state.
- The business has an office in the state.
- The business has a store in the state.
- The business has a warehouse in the state.
With sales on the internet, determining this can get tricky and there are many exceptions that apply. However, if the previous points are true, you'll need to register your LLC within the state of California as a foreign LLC.
The Franchise Tax Board has additional factors it uses to determine if a foreign LLC is officially doing business within California. These include:
- The LLC is a member of another LLC doing business in the state of California.
- The LLC is a general partner in a California partnership.
- Any members, agents, or managers transact business on behalf of the LLC in California.
- The location where the LLC is mainly controlled is in California.
- The LLC has sales of $500,000 or 25 percent of the LLC's total sales, whichever is the lesser amount.
- The LLC owns property in California with a value of $50,000 or 25 percent of its total property, whichever is the lesser amount.
- The LLC pays its employees or contractors within California $50,000 or 25 percent of the total wages paid.
Are There Any Exempt Activities?
In California, certain activities are not counted as business transactions for this purpose. These include:
- The internal affairs of the LLC such as meetings between members
- Ownership of bank accounts in California
- The location of an agency, business, or person who handles the LLC's accounting services or bonds
- The location of independent contractors who work for the LLC
- Orders that are required to be accepted and contracted outside the state
- Debt to financial institutions or investors in California
- One isolated transaction which is completed within 180 days' time
- Interstate commerce
Registering Your LLC in California
When registering a business in California, the owner needs to file an application to register a foreign limited liability company (LLC). This will be done through the California Secretary of State (SOS). To complete this process, the LLC must provide information that is similar to what would be provided in an LLC's home state. This includes:
- The name of your LLC as registered in the state it was formed
- An optional alternate name that your LLC would use in California if your original name is already in use
- The state where your LLC was formed
- The date your LLC was formed
- The name and address of your California-based registered agent
- A statement that shows you are able to conduct business in the state that your LLC was formed
If you do not select a registered agent, you will not qualify as a foreign LLC. If you do not have a registered agent within California, you will need to obtain a statement that the California Secretary of State will act as your registered agent. You must also include a certificate of good standing, which must have been issued within the past six months. This application can be filed by mail or can be dropped off in person.
It is important to note that if your LLC conducts business in California without authorization to do so, this can result in a lawsuit. That being said, an unregistered company still has to right to defend itself within California. An LLC's member(s) or manager(s) will not be liable for any debts or obligations that happen as a result of conducting unregistered business.
Cost in Registering Foreign LLC in California
- When filing an application with the state, the basic fee is $70. If the application is dropped off in person there will be an additional fee of $15. If you would like your application processed in 24 hours or the same day, this costs an additional $350 and $750 respectively.
- Once you apply, your LLC will receive a certificate of qualification in the mail. If you would like a copy returned for your records, send up to two copies of your application. The state will then return these copies to you.
Fees for Foreign LLCs in California
- The Franchise Tax Board requires a minimum yearly tax of $800 to be paid by LLCs in California. All LLCs must file a tax return with the state of California and pay this tax if they are determined to be transacting business in California, as explained earlier.
- If a foreign LLC doing business in California fails to file this tax return, it may be required to pay a penalty of $2,000 for every taxable year it has not filed and paid the required tax. However, this fine will be imposed only if the LLC receives a letter requiring the return, and the LLC fails to file within 60 days. Another penalty faced by an LLC that does not file its required tax return, and pay taxes, is the risk of having a contract with any other party voided.
- This requirement also applies to non-residents of California who have ownership interest in the LLC. They may still owe California tax on their distributed income, if its source was business transactions within the state.
- The Franchise Tax Board of California has recently taken strong steps to enforce these tax requirements, and LLCs have become its primary focus due to their tendency to be owned by non-residents.
If you need more information or help with a California foreign LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.