Legal Question in Business Law in California

Hi,

My friend and I are in the process of starting an online business with an ecommerce site and would like to begin as an LLC. The business will be selling tshirts that are created at a fulfillment center and shipped out (we never touch the merchandise). This fulfillment center is separate from the Ecommerce site and integrates with the online store. I live in California but due to the costs associated with incorporation here (initial and annual), I would like to have the incorporation in Wyoming or Nevada. If I do not touch the merchandise but it is sold to customers all over the country from the store (shipped by the fulfillment center) do I have to have my LLC listed as a foreign entity doing business in CA? Does it depend on where the fulfillment center is or where the hosted Ecommerce site is?

Thank you for your help. I haven't been able to find any articles or blogs that address this question.


Asked on 10/06/16, 10:49 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

The flow of merchandise is only one factor in determining whether California has the right to expect you to register and pay franchise taxes. If you and your friend will be actively managing the business from California, you'll probably need to register as a foreign LLC doing business here. "Active management" that would give rise to a duty to register and pay might include functions such as setting prices, keeping the books, performing market research, executing contracts, etc. etc. If you were merely investors in the proposed LLC you'd be OK not registering, but since you'll in fact be managing it from California, I see registration as required.

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Answered on 10/07/16, 10:23 am


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