Complete Guide to Foreign Entity Registration in California

Businesses formed in states outside of California must register as a foreign entity if they want to do business here. This article outlines the steps to take when you want to move forward. That includes registering with the Secretary of State and the California Department of Tax and Fee Administration.

Read this carefully to learn more about California foreign entity registration. We’ve also included links to some useful resources.

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Which Businesses Must Register as a Foreign Entity in California?

A “foreign entity” in California is any business or corporation created in another state or country. Businesses in these categories must show they’re in good standing in their home state or country and register with the California Secretary of State’s office. That applies to corporations, limited liability corporations (LLCs), partnerships, trusts, and non-profits.

Foreign entity registration in California is required if you engage in financial transactions from a physical location inside the state. It does not apply to companies selling digital goods to California residents from another state or businesses that ship physical goods from a physical location outside California. That includes businesses outside the United States.

🔍 Not what you were looking for? You might find our guide on opening an LLC as a non-resident more helpful!

Which Businesses Do Not Need to Register as a Foreign Entity in California?

The guidelines for who must request registration of foreign entity in California are pretty clear. The rules for which companies do not need to register are more complex because many are based on specific scenarios. Review these even if you think your business classifies as a foreign entity. Your situation may be an exception to the rule. Here are a few examples of what we’re talking about:

Businesses That Simply Visit Once in a While

This is also classified as “handling business affairs” in California. A good example is attending trade shows. California has several facilities that host national and international events each year. Attending one of these shows, even if you make money while there, does not require registering as a foreign entity. You’re simply a “visitor.”

Using Independent Contractors to Sell For You

Many companies establish themselves locally by using a mailbox and local phone number, but they have California-based independent contractors do the actual selling for them. This does not qualify you as a foreign entity. Your main company remains outside the state, but the local entities selling for you pay state taxes on their revenue.

Debt Collection or Holding Debt Agreements

Collecting debts from California businesses or residents does not make you a foreign entity unless the money owed is for sales made from a physical location inside the state. The same rule applies to holding debts inside a debt portfolio. That’s an investment that is not considered a transactional business. You don’t need to register it.

Defending a Legal Claim in California

Legal claims are not business transactions, though you may pay out money if you lose the case. Hiring a California attorney requires a transaction, but that’s not enough to classify your company as a foreign entity. If your actions are limited to defending the claim, you’re not required to request registration of a foreign entity in California.

Your Business Maintains a California Bank Account

California foreign entity registration is based on the physical presence of the business and where sales are made. Opening and maintaining a bank account with a California bank does not classify your company as a foreign entity.

Foreign Entity Registration in California: Step-by-Step

Are you clear on the guidelines for foreign entities in California? If not, review the previous two sections before proceeding to the following steps. You can also research this independently, but make sure you’re checking California guidelines. Other states may have different definitions, rules, and procedures for foreign entities.

Step #1: Check if You Need to Register a Business in California as a Foreign Entity

We’ve covered some of the most common scenarios determining whether a business should or should not do a California foreign entity registration. Look at your physical property holdings, sales demographics, and salaries.

Call the California Secretary of State's office if you’re still uncertain about your status. Click here for their contact information.

Step #2: See if Your Business Name is Available in California

The Secretary of State’s office has a Business Entity Search feature on their website that you can use to check if your business name is available. If your name has already been taken, you must call your company something else in California. Most businesses do this by setting up a “doing business as” (DBA) name for their in-state operations.

Step #3: Obtain a Certificate of Good Standing

A Certificate of Good Standing is an official document from your state of origin that says your company is up to date on its tax obligations and legal licensing requirements. You will need this document to register as a foreign entity in California. The Certificate must be no more than six months old and issued by an authorized public official.

Step #4: File a Statement and Designation by Foreign Corporation Form

If your business is a C-Corp or S-Corp, the document you must file with the Secretary of State in California is a “Statement and Designation by Foreign Corporation.” The form can be filled out and submitted online. If you’re an LLC, use Form LLC-5, the “Application to Register a Foreign LLC.” The application fee for either of these is $15.²

Step #5: Hire a California-Based Registered Agent

Corporations and LLCs must hire a registered agent to receive mail, tax, and legal correspondence on behalf of the business. A foreign entity operating in California must have a California-based registered agent. Several companies offer this service, with prices ranging from $25 per month to several hundred dollars per year.

Step #6: File Forms and Pay Filing Fees

Filing the Foreign Registration Statement and Certificate of Good Standing will cost your company $100 if you’re a C-Corp or S-Corp and $70 if you’re an LLC. Your company will also be liable to pay an $800 annual franchise tax for running a business in California. That tax is due within 90 days after you are recognized as a foreign entity.³

Step #7: Register for Taxes in California and Apply For Permits

The California Department of Tax and Fee Administration (CDTFA) processes tax returns. It collects state tax payments, including sales and use taxes, income taxes, franchise taxes, and state capital gains taxes. Register your business with them as soon as possible to better understand which taxes you’re liable for and when they’re due.

How Much Does it Cost to Register a Foreign Entity in California?

To register a corporation as a foreign entity in California, a $15 application fee and a $100 filing fee are charged. LLCs pay the $15 plus $70 to file the Foreign Registration Statement and Certificate of Good Standing. Those are your initial costs to obtain an official foreign entity classification, but there may be additional costs on top of that.

Cost #1: The Registered Agent Fee

Your registered agent must be based in California, so you can’t use the agent you hired in your home state. There are several registered agents to choose from. Research them carefully. The cost for a registered agent could range from a few dollars a month to several hundred dollars per year. Take your time and examine all your options.

Cost #2: The Annual Franchise Tax

The annual franchise tax is $800, due within ninety days of registering your business as a foreign entity in California. It’s also due once per year after that. You’ll want to be prepared for this before you file papers with the Secretary of State’s office. Move forward with your foreign entity registration only when you know your business can be profitable.

Cost #3: Legal and Accounting Services

This is not a cost specific to a California foreign entity registration but a cost of doing business in another state. The laws, rules, and regulations differ from those in your home state. An attorney can keep you in compliance. The tax code is also different. A local accountant can help you navigate that. Consider both of these “essential” expenses.

Revenue, Property, and Payroll Requirements for Foreign Entities in California

Businesses that move their headquarters to California can register as local businesses and not as foreign entities. Revenue criteria also determine whether a business needs to register as a foreign entity. You must register if your company makes over $690,144 or gets over 25% of its sales in California. That’s based on total sales revenue.

Other factors determining foreign entity status are the amount of California property your company owns and your total California payroll. The property rule is $69,015, or 25% of your total property holdings. The payroll numbers are the same ($69,015 or 25%).¹ Exceeding either of these limits triggers the foreign entity California registration requirements.

Penalties for Not Completing Foreign Entity Registration in California

There are consequences for not completing a foreign entity registration when you open a transactional business in California. You can avoid these by carefully studying the factors that make you a foreign entity and the exceptions to the rule. You should also contact the Secretary of State’s office to clarify your status. Here are some of the consequences you’ll face if you neglect or refuse to register your business:

• Fines and Penalties
• Loss of Legal Protection
• Surrender of Certain Rights
• Ineligibility for Licenses and Permits
• Ineligibility for Contracts with California Entities
• Damage to Your Reputation as a California Business

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• No monthly fees
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• Easy batch payments
• Connect to QuickBooks to track bill payments
• Designed to manage multiple currencies all in one place
• Receive payments like a local with major currency account details
• Hold over 40 currencies

Helpful Links for Foreign Entity Registration in California

The links below will take you to the applications, documentation, and contact information you’ll need to register a foreign entity in California. We’ve also included a link to Wise Business to set up a business bank account that will help your global business.

• Statement and Designation by Foreign Corporation
• Application to Register a Foreign LLC
• California Secretary of State Contact Information
• State of California Business Entity Search
• California Department of Tax and Fee Administration
• Open a Wise Business Bank Account

🔍 Read the guide on how to open a Wise Business account next!

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Sources:

1. “Foreign entity registration in California: How to qualify,” Stable
2. “Business Entities Submission Cover Sheet,” California Secretary of State
3. “How to Qualify as a Foreign Business in California,” Nolo