Legal Question in Business Law in California

Re: Question on Incorporation

(1) 99.5% of the time, a small business is better off being incorporated where its owner lives. Anything else gets you dual paperwork and dual taxation.

(2) Under the given facts, you are a non-California business because you are a Nevada business, not because of what kind of widgets you make or where your servers are. However, California will subject your company to the exact same taxation and licensing requirements as a Nevada corporation as it would if you were a California corporation. Running a Web-based business is running a business just as much as is running an iron foundry or making sausages.

It is possible for an out-of-state business, such as a Nevada corporation, legally to avoid being subject to registration and taxation here if its contacts with California are truly minimal, and this is why Web-based business don't pay taxes in all 50 states just because their site can be viewed in each state. You cross the threshold from not doing busines and hence not being taxed to doing business and being subject to registration and taxation when any of the following happens: (1) you have a physical presence here, such as your company headquarters; (2) you have employees here; (3) you do regular business here, such as receiving payments, taking orders, banking, buying supplies, and doing deals; (4) your physical address, or one of your physical addresses, is in California. This is not an official list, just a list of things likely to trigger the Franchise Tax Board to look for an $800 a year minimum tax payment and the Secretary of State to expect you to qualify as an out-of-state ("foreign") corporation.

(3) A business incorporated outside California is considered "foreign" whether it is incorporated in one of the other 49 states or anywhere else in the world. Such a corporation is subject to California's tax and license laws if it does business here. It will also be subject to the laws of the jurisdiction of its incorporation.