A Certificate of Qualification is essentially a license for a foreign company to “transact business” in California. In this case, “foreign” doesn’t mean from another country -- it means from out of state. In particular, it refers to a company that was organized under the laws of another state or another country. A company based in California but incorporated in Delaware, for example, is considered a foreign company even if it has never done business outside of California.

Does Your Company Need to Register?

California law requires registration for any foreign company that “transacts intrastate business” in California. What exactly is that, though? According to the California Corporations Code, it means entering into repeated transactions in California, not counting interstate or foreign commerce. Since a certain amount of ambiguity remains in this definition, California provides a list of activities that do not count as “transacting intrastate business.” These activities include:

  • Participating in a lawsuit or arbitration

  • Convening meetings of shareholders or board of directors

  • Establishing in-state bank accounts

  • Renting or owning office space dedicated to the disposition of the company’s own securities

  • Using independent contractors to sell goods or services

  • Soliciting or obtaining orders that require out-of-state acceptance before they are legally binding

  • Creating a record of debt, mortgages, lien, or security interests

  • Conducting a single transaction within a period of 180 days

Consider the foregoing list a “safe harbor” – you are safe if you clearly comply with its terms. If you don’t comply, however, a closer look at your involvement with the California economy may be required.  

How to Register

To register, you must file the appropriate form with the California Secretary of State. Depending on your form of business organization, you would use the Application to Register a Foreign Limited Liability Company (LLC) or the Statement and Designation by Foreign Corporation. You will also have to file other documents such as a Certificate of Good Standing from your home state and a Statement of Information. You must also appoint an in-state agent and pay a filing fee.

Consequences of Failure to Register

The purpose of requiring registration is to make sure that the company pays its state taxes. As such, the penalties for non-registration are not that severe as long as you file a tax return anyway. The only absolute ”penalty” is the inability to file a lawsuit. If an unregistered foreign company fails to file a California tax return, however, it can be fined and its in-state contracts may be voidable by the other party

Contact CKB Vienna

California law is unique in many ways, and the regulatory burden of doing business in-state is higher than in most states. A major problem faced by out-of-state companies doing business in California is that they don’t know when they have run into a legal issue. This can be dangerous to say the least.

If you are concerned about your company’s legal status in California, call CKB Vienna today or fill out our online contract form to schedule a consultation. We serve clients in Rancho Cucamonga, San Bernardino County, Los Angeles County, Orange County, and Riverside County.