Key Takeaways

  • A Delaware corporation doing business in California must register as a foreign corporation with the California Secretary of State.
  • Key legal requirements include appointing a registered agent, filing annual reports, and paying California franchise taxes.
  • Filing fees include an initial $100 fee, an $800 minimum annual franchise tax, and other administrative costs.
  • Failure to register can result in penalties, tax liabilities, and the inability to legally enforce contracts in California.
  • Employment laws in California may apply if the company hires employees within the state.
  • Delaware offers strong corporate protections, but California's business laws still govern operations within the state.
  • Companies that engage in continuous transactions in California are considered to be "doing business" and must comply with state regulations.
  • Foreign corporations in California must comply with local tax regulations, including potential double taxation.

A Delaware corporation doing business in California is both legal and commonplace. Founders may decide to do this for many reasons, even if their principal place of business will be California. While perfectly legal, there are a few practical points for consideration.

First and foremost, all Delaware corporations must have a Registered Agent in the state of Delaware. If you're planning on incorporating in Delaware but are located in California, you'll be required to have a Registered Agent. Plenty of companies exist for this very reason, and their fees may be as low as $100 per year.

Corporation Resolve

Once a Delaware corporation has been formed, the founders must have the corporation resolve in order to do business in other states. Typically, this is carried out by a board resolution at the initial board of directors meeting. However, it can also be accomplished via written consent in place of a meeting.

Before a corporation is able to carry out intrastate business in California, it will have to qualify and register with the California Secretary of State. This can be initiated with a Statement and Designation by Foreign Corporation.

There are two sections in the California Corporations Code worth highlighting. They are sections 191, 15901.02(a) and 17001(ap). These codes consider intrastate business to be successive transactions carried out within the state, as opposed to interstate and foreign commerce.

Fees for Filing

Choosing to register a corporation as a foreign business entity in California will set the company up for the minimum franchise tax of $800 per year after the first year. Keep in mind that regular franchise taxes still apply, even with the minimum franchise tax. Take note of the following fees:

  • A $100 filing fee.
  • A $50 fee for a Certificate of Good Standing from the state of Delaware. (That certificate will be required to file your Statement and Designation.)
  • A $5 fee if you'd like to receive a file-stamped copy for your records.

Tax Obligations for Delaware Corporations in California

Even though a Delaware corporation is registered outside California, it still has tax obligations in the state. These include:

  1. Annual Franchise Tax – All foreign corporations must pay a minimum $800 franchise tax, even if they generate no revenue in California.
  2. Corporate Income Tax – If the corporation earns income in California, it is subject to California’s corporate tax rate of 8.84%.
  3. Double Taxation Risk – Delaware corporations may be required to pay taxes in both Delaware and California, depending on revenue sources and business structure.
  4. Sales Tax Compliance – If selling products in California, the corporation may be required to collect and remit sales tax to the California Department of Tax and Fee Administration (CDTFA).
  5. Withholding Tax for Nonresident Owners – If the corporation distributes income to nonresident shareholders, California requires withholding taxes on those payments.

Failing to meet tax requirements can result in penalties, tax liens, and additional interest charges.

Doing Business in California

If you're a Delaware LLC planning to do business in California, you'll be considered domestic to Delaware and foreign to the state of California. The reason Delaware is such a popular domestic choice is because it allows you to leverage the corporate law structure.

When your business has a physical presence in California due to its operations, employees, bank accounts, or assets, you'll need to go through what's known as foreign qualification in order for the business to operate there.

Foreign qualification will enable you to carry out business in California. Failure to abide by local compliance laws may put the entire company at risk. That's why California requires companies to apply for registration and produce a Certificate of Incorporation from Delaware, as well as a Certificate of Good Standing. Each of these documents must be fulfilled within the last six months.

Determining Whether You Are "Doing Business" in California

alifornia law broadly defines "doing business" to include companies that:

  • Have a physical presence in the state, such as an office, warehouse, or retail location.
  • Employ workers in California, including remote employees.
  • Derive revenue from California-based customers, even if operations are remote.
  • Hold property, assets, or inventory within the state.

Under California Revenue and Taxation Code Section 23101, a corporation is considered to be doing business in California if it meets any of the following economic thresholds:

  • Sales exceed $690,144 (as of 2024) or 25% of total revenue.
  • Property value in California exceeds $69,015.
  • Payroll expenses exceed $69,015.

Corporations that meet these criteria must register and comply with California tax laws.

Registered Agent

A Registered Agent in California is important because he or she will liaise with the state. This will also provide you with the necessary physical address within the state of California, allowing you to receive legal documents.

Some companies choose to be their own Registered Agent, but you'll also find others will seek out the support of their Delaware Registered Agent. Typically, a Delaware Registered Agent can also serve in this capacity in California.

California law requires the person with authority to sign the laws of the state of the organization in order to complete the application. Information provided to the state of California will also be made public. That said, there's no publication requirement, unless the county where your registered agent lives mandates one.

Reporting Requirements

After your company is registered in California, there will be specific reporting requirements:

  • The initial reports will be due 90 days from filing.
  • The biennial reports will be due on the last day of the month you filed.

The costs come in at $30 for the initial report, as well as $20 for all subsequent reports. A late fee of $250 will be imposed by the state of California if these requirements aren't met on time. And don't forget about that franchise tax of $800 per year.

Consequences of Failing to Register in California

Failure to register as a foreign corporation in California can lead to significant penalties, including:

  • Fines and late fees for failing to file the Statement of Information.
  • Loss of ability to enforce contracts – Unregistered corporations cannot legally enforce contracts in California courts.
  • Additional back taxes and penalties imposed by the Franchise Tax Board (FTB).
  • Risk of business dissolution – California authorities may initiate legal actions to prevent non-compliant entities from operating in the state.

To remain compliant, corporations should register early, file required tax documents, and ensure ongoing compliance with California business regulations.

Frequently Asked Questions

1. Can a Delaware corporation operate in California without registering?

No. A Delaware corporation must register as a foreign entity if it meets California’s criteria for "doing business." Failure to register can lead to penalties and tax liabilities.

2. What is the California franchise tax for foreign corporations?

All foreign corporations in California must pay a minimum annual franchise tax of $800, even if they do not generate income in the state.

3. How do I register a Delaware corporation in California?

To register, file a Statement and Designation by Foreign Corporation with the California Secretary of State, pay the required filing fees, and designate a California registered agent.

4. Do California employment laws apply to Delaware corporations?

Yes. If a Delaware corporation hires employees in California, it must comply with state labor laws, including wage laws, workers’ compensation, and employee benefits.

5. Can I avoid double taxation if my business is incorporated in Delaware but operates in California?

It depends. If your company earns income in California, you may be subject to both Delaware and California taxes. However, tax strategies such as apportionment and tax credits can help minimize tax burdens.

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