Legal Question in Business Law in California

Re: Incorporating a foreign business - franchise tax

Yes, anyone doing busintess in California as a corporation, whether incorporated in California or not, is required to pay the $800 per year.

Re: Incorporating a foreign business - franchise tax

A foreign (e.g., Delaware) corporation doing business in California must pay (at least) the minimum franchise tax, which is a tax for the privilege of doing business in California.

If the business done is limited to isolated transactions such as occasional purchase or sale of real estate, the foreign corporation may not be considered to be 'doing business' here; it seems there must be some regularity or pattern. However, any corporation whose principal place of business is here clearly is subject to the tax.

Failure to register and pay the tax has serious consequences; it can be charged as a misdemeanor and cuts off the corporation's right to sue.

There is no particular advantage to incorporation in Delaware for 99.999% of start-up businesses unless, of course, they are located in that state. Same can be said of Nevada, Wyoming, Maine, etc. domiciles. The advantages of incorporation in those states generally become significant only when businesses are large enough to be publicly traded, face hostile takeover attempts, be in state court on various corporate matters all the time, and so on. Unless you have a REALLY sound reason, incorporate here.

Re: Incorporating a foreign business - franchise tax

If you do business in CA as an out of state corporation you will need to qualify to do business in CA (relatively simple procedure), and file an annual non-resident tax return (requires a minimum of $800 for minimum tax each year).

Re: Incorporating a foreign business - franchise tax

Yes.

Joel Selik

www.SelikLaw.com