Many business owners choose to form a limited liability company (LLC) because of its advantages. To open this type of business entity, one has to register with a state of their choice. Each state comes with different regulations regarding LLCs. But what happens if you wish to do business in other states, like California? Well, all you need to do is register a foreign LLC in California. This way, you can legally do business in this state.
Types of LLC
There are two types of LLC registrations in each state. These are the domestic LLC and foreign LLC.
· Domestic LLC
As the name suggests, this type of LLC refers to those that operate in the same state where they registered their business. For example, you formed an LLC in California. If that is the only state where you do business as an LLC, then you are organizing a domestic LLC.
· Foreign LLC
This type of LLC is the opposite of the first one. In this situation, foreign does not mean a different country or a non-US resident owner. These LLCs operate in a different state from the state where they organized their business. For example, you have formed an LLC in one state and wish to conduct business in another. You have to obtain a foreign qualification in that other state.
Foreign Qualification in California
Each state has its own regulations when it comes to foreign qualification. To register a foreign LLC in California, you will have to file an Application to Register a Foreign LLC with the Secretary of State and submit a Certificate of Good Standing. You will obtain the latter through the home state of your business. Pay for the state fees and follow the foreign qualification process thoroughly. If you find the process a bit overwhelming, you can hire an expert company like DoMyLLC to have a smooth registration experience.
California requires companies to register for foreign qualification if they are transacting business in the state. One way to determine if a company is transacting business in California is if it has to pay for state sales taxes. In other words, a business that has a physical presence in the state should have to foreign qualify first. To be able to do that, get to know the required general rules that are stated below.
· You have at least one sales representative in California.
· Your business has an office within the state.
· You have a store in California.
· Your company has a warehouse in the state.
· Your company is a member of another LLC that conducts business in California.
· Your LLC is a general partner in a California partnership.
· A member, agent, or manager of your LLC transacts business on behalf of your company in California.
· Your LLC has generated sales here worth $500,000 or 25% of the total sales, whichever is lesser.
· Your company owns a property in California that has a value of $50,000 or 25% of its total property, whichever is less.
· Your LLC pays employees or contractors in California $50,000 or 25% of the total wages the company paid.
Exemptions To The Rule
California has specified some activities that it does not consider as transacting business in the state. If your LLC does any of these activities, then you do not have to register a foreign LLC in California.
- You settle lawsuits.
- You deal with internal LLC affairs, including meetings.
- Your LLC has a bank account in the state.
- Your company has an office, agency, or people in California who handles the LLC’s accounting services and bonds.
- You are selling products through independent contractors.
- Your LLC solicit or obtain orders that you have to contract or accept outside the state.
- You are securing or collecting a debt.
- You are acquiring indebtedness, evidence of such activity, mortgages, or security interests in real and personal property.
- Your LLC conducted an isolated transaction that you completed within 180 days.
- Your LLC conducts business in interstate commerce.
Keep in mind that these exemptions are not exclusive. California may exempt other activities based on the Corporations Code. To ensure compliance, you should check with state laws and try to understand the regulations properly.
If your company’s activities do not fall under the exemptions, you may have to undergo foreign qualification. If you fail to register, you may have to face legal issues. Make sure you submit all documents, follow all requirements, and pay for the fees to legalize your transactions in the state. You can also hire a consultation company to help you through the process.
