Foreign Corporations Doing Business in California Must Qualify

You have or form a corporation in a state other than California.  If the corporation wishes to do business in California, you must determine whether or not the proposed business activities will require that you “qualify” the corporation to do business in California.

A corporation formed in a jurisdiction other than California is called a “foreign” corporation under California law.  A foreign corporation may not transact intrastate business in California without first qualifying with the California Secretary of State.  Qualification requires completing and filing some forms with the Secretary of State and naming an agent for service of process within the state.  Other states have similar requirements with respect to corporations formed in California or other jurisdictions which wish to do business in their states.

For California, “transact intrastate business” is defined to mean entering into repeated and successive transactions of business in California, other than interstate or foreign commerce.  Although certain activities are specifically excluded from what constitutes transacting intrastate business, there is no specific definition of what activities do constitute transacting intrastate business and each case must be decided on its own.

There are penalties for failure to qualify in California if required.  They include the following:

  • The corporation may be subject to a penalty of $20 for each day that unauthorized interstate business is transacted.
  • The corporation may not maintain any action or proceeding in any California court upon any intrastate business transacted in California until it has complied with the qualification requirements and paid applicable penalties.
  • Any person who transacts intrastate business on behalf of the corporation, knowing that it is not authorized to do so, is guilty of a misdemeanor punishable by a fine.

Similar requirements apply to other entities which may wish to transact intrastate business in California.

If you have any questions, please contact L. Michael Telleen at mtelleen@carr-mcclellan.com or at (650) 342-9600.