Legal Question in Business Law in California

California, unless, perhaps, the business will be publicly traded on an exchange. Nevada advocates will talk about lack of taxes and privacy, but those arguments are full of holes. If I want to sue a Nevada corporation and need to find out all about its officers, directors and shareholders, I can learn that as quickly and completely through Carson City as through Sacramento. Further, if you operate in California, you will be paying fees and filing reports in both states. The only new or small businesses that should incorporate in Nevada are those which operate there. I speak from experience; before I was a lawyer I was an entrepreneur and have formed and run at least two Nevada corporations (for businesses headquartered in Nevada) and at least six California corporations (all headquartered in California).

For the most part I agree with Mr. Whipple. However, keep in mind that the state in which you form your business is one which is arrived at after understanding the nature of the business and what risks (both legal and tax) the business will be facing as well as understanding the future of the business.

Typically, California will be the right option but other states (even other than Nevada) can be beneficial depending on the circumstances.

The fact is that if you are going to do business in California, you will have to either incorporate or register as a foreign corporation in California anyway, even if you decided to incorporate first in Nevada.

A foreign corporation shall not "transact business" in California without having first obtained from the Secretary of State a certificate of qualification. According to California case law, activities that almost invariably lead to a finding of "transacting business" in California are the physical presence of corporate employees or agents, rather than independent contractors, in California, or the physical location of offices, particularly headquarters, in California. Other key factors are signing of contracts, particularly those to be performed within California.

If your circumstances fall into the grey area between the need to qualify or not qualify, it is important to plan this properly, as there are significant penalties, if you do not qualify, when the State of California thinks you should have.

It is oftentimes more advantageous for larger corporations to incorporate in Nevada or Delaware, as management has more rights, and shareholders (especially minority shareholders) have less rights, than in California.

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