1. Nevada and Wyoming Corporations
2. Advantages of an LLC
3. What Are the Requirements for Doing Business in California?
4. Requirements for Doing Business in Texas
5. How Does the Franchise Tax Board Determine if You Are Doing Business in California?
6. Does Your Company Have to Register as a Foreign Business to Qualify to Do Business in Another State?

If you are a Nevada corporation doing business in California, there are steps to follow to ensure that your business entity is in compliance with state regulations. This involves separating your personal and business assets and obtaining and maintaining compliance at:

  • The Secretary of State level.
  • The business credit level.
  • The state and federal taxation level.

Nevada and Wyoming Corporations

Forming corporations in Nevada and Wyoming can be beneficial because of their ability to save corporations on state corporate income taxes. Though this rarely comes into play for corporations who register as foreign entities to do business in another state.

Advantages of an LLC

There are many advantages to forming a business as an LLC. Some benefits of operating as an LLC include:

  • Flow-through taxation, which allows you to avoid the double taxation that corporations face and has the profits from the company flow through to the member's personal tax returns based on their portion of ownership. This usually provides for better tax rates on income.
  • An LLC only requires an informational return for filing at the state and federal level.
  • Asset protection from liability if the business owes debts.

What Are the Requirements for Doing Business in California?

California is considered one of the highest taxed states in the United States. They have a minimal annual franchise fee of $800 that applies to all entities doing business in California. California has a specific state tax rate for all business entities. You can find what constitutes as doing business in California by looking at the California Franchise Tax Board website. In general, doing business in the state of California is defined as actively engaging in any transaction for the purpose of financial gain which creates a wide interpretation for doing business.

Requirements for Doing Business in Texas

While Texas does not have a state corporate income tax, they do still require payment of a franchise tax. A franchise tax is imposed on corporations and limited liability companies that are chartered to do business in the state of Texas. The tax can also be imposed on non-Texas based companies that engage in business activities in the state.

The Texas Franchise Tax fee is basically a different way to refer to state income tax. Though by terming it this way, the state has the benefit of the enticing new business as it can boast no personal income taxes which is appealing to new business owners.

It is also important to note that if you are doing any type of business in the state of Texas, even a real estate deal, the Texas Franchise Tax will be triggered.

There are two approaches used for taxing businesses in Texas. You can be taxed by the corporation's stated tax. Taxable capital is based on the annual report filed after the corporation last accounting period of the calendar year and is taxed at a rate of 0.25 percent. Any earned surplus for an annual report will need to be reported the day after the ending date that the previous franchise tax report to the ending date of the corporation's last fiscal accounting period for the year. This rate is taxed at 4.5 percent.

How Does the Franchise Tax Board Determine if You Are Doing Business in California?

The easiest way that the California Franchise Tax Board can check to see if you are doing business in California is by getting a subpoena for your business credit card to see where transactions on the card took place. For example, if you are registered in the state of Nevada and note registered to do business in California but your transactions are in the state of California, you can be required to pay the franchise tax fee along with any penalties and interest that have accrued. California takes the point of view that most of the expenses for your business should be in the state your business is located.

Does Your Company Have to Register as a Foreign Business to Qualify to Do Business in Another State?

The short answer is no, but you run the risk of doing business in another state that is subject to state taxes without realizing it. If you hire employees in another state, you will be required to register as a foreign entity to be able to pay their payroll taxes.

If you need help with a Nevada corporation doing business in California, 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.