California Foreign LLC: Everything You Need to Know
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.3 min read
2. Are There Any Exempt Activities?
3. Registering Your LLC in California
4. Fees for Foreign LLCs in California
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
In order to register your business in the state of California you need to file a form with the Secretary of State; this is called “Application to Register a Foreign Limited Liability Company.” It can be downloaded on the Secretary of State's website. On the form, you will include much of the same information used to create your LLC in the first place.
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.