As of 2016, more than a million U.S. companies have incorporated in Delaware, including many startups and small businesses that hail from California’s Silicon Valley.
Why do so many startups incorporate in Delaware?
In a previous article, we discussed how incorporating in Delaware benefits businesses: Essentially, non-resident businesses don’t pay income, property, or sales taxes in Delaware.
However, if you’re planning on doing any business in California, there are still some hoops you need to jump through to avoid fees and penalties.
Here’s what you need to know if your Delaware C Corporation is based in California—aka the biggest state economy in the United States and the eighth biggest economy in the whole world!
What Delaware-Registered Companies Can Do to Stay Compliant in California
No matter where you’re incorporated, if you want to do business in California, you need first to qualify and then to register with the California Secretary of State. Do this to avoid costly financial penalties.
The only way to confirm that you qualify as a business entity in the state of California is to consult a lawyer. The qualification and registration process involves filling out and submitting the paperwork listed on the California Secretary of State website. Note that the specific forms will vary based on the type of business you have, as will the fees you pay.
Just so you know, although we do everything we can to provide our clients with top-notch financial assistance, inDinero can’t help you with the registration process. However, we do have some outstanding attorneys in our Rolodex that we can recommend if you need help finding one.
Once you are ready to submit your paperwork to the state, be sure to consult these filing tips provided by the California Secretary of State. According to their site, they frequently send back submitted forms because they aren’t filled out according to the state’s strict specifications.
But What Does “Doing Business in California” Actually Mean?
Doing business in California doesn’t just refer to opening a storefront or office. California considers “doing business” as “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce” (source). If that sounds vague to you, that’s because it is: that’s why lawyers need to be involved.
Here’s a practical example of what “repeated and successive” means: Let’s say a popular software company based in Colorado has thousands of customers who happen to live in California. In this case, the company would likely have to register in California since it has repeated transactions with people living in the state. However, because the specific number of transactions isn’t defined by the state, your lawyer will be the one to help you determine whether or not you fit this criteria.
Closing the Loop:
So in summary, if your Delaware-registered business has any activities in California, talk to a lawyer to see if you qualify as “doing business.” You may need to register with the California Secretary of State.
Do you have more questions about small business taxes?
Schedule a call with one of our financial consultants to see if inDinero can lift your back-office burden.