Foreign (Out-of-State) LLC Doing Business in CA? What to Know

A California Foreign LLC refers to any business that’s been created in a state other than California. If you’re looking to do business in the Golden State, your company must first register in the state. In this context, “foreign” doesn’t mean another country – just another state within the United States. 

A business organized in the state where it does business is referred to as a “domestic LLC.”

What should I know as an out-of-state business in CA?

Before transacting intrastate business in California, the company must register with the California Secretary of State. “Transacting intrastate business” is defined as entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.

California’s LLC Act requires foreign LLCs to register with California if they transact business within the state. When a company has a physical presence in the state, it must also collect sales tax on its sales to residents of that state. 

If your company handles financial information, consumer data or sells consumer data, it should check its compliance with California privacy law and corporate registration requirements. 

A foreign corporation that fails to register in California may not bring or maintain a lawsuit in California courts (although it may be able to defend the action, it could not bring a cross-complaint or counterclaim). However, to be clear, any entity, even unregistered foreign entities, is entitled to defend against lawsuits brought against them in California.

All corporations and LLCs, even small ones like subchapter S corporations, are legally separate and distinct from their shareholders or members, even if there is only one shareholder. Corporations and LLCs protect their shareholders or members with limited liability. Because the only person who may legally represent another person in court is an attorney, only an attorney may represent a corporation in court. 

In California, the only exception is that a corporation cannot be represented in small-claims court by an attorney. 

Annual Tax for CA Businesses

Under California law, a small company such as an LLC, LP, or LLP that organizes in the State of California would typically owe an annual minimum tax of $800. However, for Companies formed between January 1, 2021, and ending December 31, 2023, the company is exempt from the annual minimum tax for the first year. 

Suppose your company receives a letter from the California Franchise Tax Board informing it that it has been doing business in California without filing a tax return. In that case, it must file such a return within sixty (60) days or face a potential fine of $2,000.

California’s FTB scrutinizes Limited Liability Companies (LLC) that it suspects of transacting intrastate business in California for compliance audit because an LLC is more likely to be an informally operated out-of-state company that may be unaware of its non-compliance.

Call Gallagher Krich, APC, at (858) 926-5797 should you have any questions about registering your out-of-state company in the State of California, or see our LLC Help Form here.

For more information, please visit our website.

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