Incorporation · California tax

Delaware as well as California business registration for Tax purposes?

Anonymous

December 16th, 2014

We have a company registered in Delaware via cscglobal. Tax advisor has suggested us to make a business registration in California too. I have reached out to cscglobal again and their estimated invoice total is $615, including $213 for being a registered agent. 
My question is - If you have a similar company setup i.e registered in Delaware as well as California, how have you done it and managing it? Is it reasonable to pay $213+$213 annual fee for same agent representing in two different states. Any cheaper alternatives?
Thanks!

Chris Murphy Director of Corporate and Legal Affairs at E2open

December 16th, 2014

So, I hate to do this, but since this is a legal question, and some of the information presented so far I do not believe to be accurate, I will throw in this caveat - I am an attorney (not licensed in California), but I am not YOUR attorney, and this is not legal advice.  :-)

That aside, I am not sure why there would be a "tax" reason to register as a foreign corporation in California (I imagine this is what your advisor meant, but definitely double check).  There is a legal threshold that once you cross you MUST register as a foreign corp in CA, but that isn't directly tax related (except to the extent that also means you owe taxes there - you certainly aren't saving any money by registering at least).  If you have California based employees that you pay or compensate, and it seems you likely do, then you likely DO need to register there as a foreign entity.  Also, unless statutes changed very recently, you DO need an agent for service of process, but that can be an individual as well as a corporation.  This could even be you (if you are located in California) but it puts some obligations on you that make getting a $50 agent pretty appealing.

To that last point, CSC is quite fine, but they are a pricier company for registered agent service.  I have NO ties to any agent service, but I have used Harvard Business Service for a registered agent in Delaware at about $50 annually, and there appear to be similar services in CA.  There was a thread on here a while back with recommendations for such agencies.

Long story shorter - IF you are required to register in CA, then you need to do so.  There will be a fee for such registration mandated by the state.  You will also have to have an agent for service of process there just like you do in DE, and there will be another fee (besides your DE agent) if you use a company.  However, you can probably get agent service in both states for less money if you check around.  

I would definitely go back to your advisor for clarity on exactly what they were recommending and why, and depending upon that, it *might* be worth trying to find a local California attorney to have a SHORT discussion with.  I don't always recommend this, but if you are uncertain about things, that would likely be money will spent.

Anonymous

December 16th, 2014

You don't need a registered agent in California, but you do in Delaware. Usually, the registered agent base fee doesn't get you anything, other than complying with the law. You'd have to ask what cscglobal includes in their fees for "California registered agent".

In California, you'd have to file a Statement and Designation by Foreign Corporation form and pay $100 (cf. http://www.sos.ca.gov/business-programs/business-entities/forms/#fgncorp ). You should file that form with a copy of your certificate of good standing from the Delaware Secretary of State and you should be good to go.

Later on, you'd have to file a Statement of Information whenever there's a material change in your CA corporation (such as change of address or officers) or every 2 years at least.

Of course, a lawyer or an agent can help you with those forms, but there's really no obligation to have a registered agent or even a "service for process agent" in California.

Eric Rogness Technical Product Manager

December 16th, 2014

I'm guessing that you'll eventually be looking for funding. While your accountant may be giving you good advice to minimize your tax burden, you do not want to have to explain a convoluted corporate structure to investors. If the annual benefit is <$10k currently, it's probably not worth it. And since you're counting the pennies, I would guess that it's not. Being able to give a simple answer to "Where are you incorporated?" is worth a great deal.

For entrepreneurs outside  the United States, there may be very valuable reasons to have a more complex structure, like in Canada, where you can recover 40-60% of your expenses, e.g.http://maplebutter.com/us-incorporation-for-canadian-startups/.

Tony Dykes Director at EnChroma, Inc.

December 16th, 2014

I think you might want to chalk this up to poor accounting advice unless there is some important detail you are omitting. The reverse would make *some* theoretical sense, running non-California revenue through Delaware to minimize taxes, but it would be a poor way to do it.

I know of no one who has done or proposed this to me, only moving from one to the other for various specific reasons. Delaware is a good place to be registered.

Anonymous

December 16th, 2014

Chris,

You are technically correct that you need to have an agent for service of process in California, but since that agent can be yourself (as you point out), you're essentially not required to have a registered agent in the Delaware sense (meaning a Delaware-approved company that can act as such, not just anyone).

Is this the only information you thought was inaccurate?

Furthermore, if CSC Global is representing itself as a "registered agent" in California, I would say that they are misleading their customers, because they can't make that specific claim, as it could be construed as the same mandatory role a registered agent has in Delaware (they could say they are a California agent for service of process though)

Roger Royse Royse Law Firm

December 19th, 2014

Your post points out a huge problem with non-attorney corporate registrations - you are left to fend for yourself on what you should file and where.  You save a few dollars on the front end but pay for it when you get into due diligence in a financing or M&A transaction. You can find more detail in our article on the topic at Royse University but basically you need to qualify in CA if you are conducting intrastate business in CA (a technical term). You can be the registered agent in you are an individual with an in-state address.

Anonymous

December 19th, 2014

Brian is right. I didn't check that Vishal is apparently based in SF so Inferess is by default doing business in CA.

In that case, the tax advisor shouldn't have _suggested_ to incorporate as a CA foreign corp, but _mandated_ to do so. At this point, it's not an alternative, but how you go about doing it is your choice. Brian's S&DC-SN form is really all you have to file at this point, along with a $100 check - add $5 if you want to get a certified copy, which is recommended)

Anonymous

December 19th, 2014

Thanks everyone for taking time and answering my question! For the benefit of others who might be in the same situation i.e company incorporated in Delaware but located / doing business in California, let me summarize what I learnt from here... 

Entity located in California but incorporated in Delaware has to
- Must be registered as a foreign entity doing business in CA. Here's a registration form bpd.cdn.sos.ca.gov/corp/pdf/foreign/s&dc-sn.pdf  (Thanks Brian ChongRaphael Londner)
- CA requires to designate Registered Agent and in the the above form "Service of Process" states the criteria of who can be designated agent.
- Certificate of good standing from Delaware is a pre-req of the registration process. Costs $50 - More information here http://corp.delaware.gov/directweb.shtml

My company use CSCGlobal as a Registered Agent in Delaware which is much pricier ($213 p/a) than the Harvard Business Services ($50) as pointed out by Chris Murphy. So, I am going to speak to Harvard and hopefully switch agent. I am also going to discuss if they have representation in CA and can become our registered agent here as well - will keep everyone posted on the outcome.

Thanks again everyone!






Wayne Rowlands Co-Founder, President

December 23rd, 2014

Our company is a C corporation that was incorporated in Delaware. We do business in California. We work with Incorporating Services, Ltd. https://www.incserv.com/. We have experienced great services and have no issues except that the State of California's Secretary of State's office is not very friendly.

Elias Azrak

December 23rd, 2014

I believe the annual fee you will be paying in Delaware to have your company registered there is of $250. The minimum annual fee you will be paying to the FTB in California is of $800 for doing business in the State. The one question you should be asking yourself is what advantages does a Delaware registration adds to a California compulsory one, should you be reorganizing your structure at some later date once you start generating sales in other States?