How to Move a Corporation From Nevada to California

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A business incorporated in Nevada has the option of reincorporating in California. It also has the option of acting as a "foreign entity" in the Golden State, in which case it must register with the California Secretary of State to operate legally. When a corporation registers as a foreign entity in California, it must be in good standing in Nevada.

Reasons for Moving a Business Entity to California

California is an economically strong state. In 2021, its Real Gross Domestic Product (GDP) was $2.87 trillion, an increase from 2020 when the state's GDP was at $2.66 trillion. The Golden State has the world's fifth-largest economy – 49 Fortune 500 companies call it home, as do 3.5 million small businesses.

California's unemployment rate is relatively low, at 4.3 percent. Its top industries are agriculture, tourism and hospitality, healthcare, construction, technology and information.

California Income Tax Credits and Exemptions

California offers many tax credit programs for businesses coming to the state. Depending on the program and qualification criteria, a business can enjoy tax credits in areas such as:

  • Qualified wages and expenditures.
  • Community development and research.
  • Construction or rehabilitation of low-income housing.
  • Job creation.
  • Employee retention.
  • Economic impact of business projects.

Businesses moving to California can benefit from a variety of tax exemption programs, which are classified by industry or business area. California also applies sales and use tax exemptions according to industries or businesses in categories including alternate energy, food health, housing, transportation and entertainment, among other sectors.

What Is the Corporate Domicile?

A corporate domicile is a corporation's legal home or corporate affair center that helps determine taxes and legal status for the company. A corporation is a citizen in the state where it incorporates and where its affairs are primarily carried out. Where a company incorporates is influenced by several factors, particularly state laws.

A company's domicile shapes the rights and obligations of its officers, shareholders, board of directors, and creditors. It also influences the amount of state tax that a corporation pays.

Incorporation Under Nevada Laws

To incorporate a business in Nevada, a company must complete certain tasks:

  • Choose a corporate name that is distinguishable from other business names used in the state.
  • Draft Articles of Incorporation with the Nevada Secretary of State and file the Articles online or by email, and pay the filing fee, which is based on the number of shares the corporation can issue, with or without face value.
  • File an Initial List of Officers, Directors, and Registered Agent and a State Business License Application with the state.
  • Appoint a registered agent that is a person or business to accept legal papers on the corporation's behalf in the event of litigation.
  • Appoint directors and prepare bylaws for the corporation, and hold the first board meeting.
  • File for a business license and get an employer identification number (EIN).

Nevada corporations are required to maintain a registered agent and a head office in the state. Most corporations typically incorporate in one home state and do business in other states.

Switching domiciles from one state to another can be a complex process for a corporation, as it depends on how its Articles of Incorporation and bylaws were created. It costs $100 to dissolve a corporation in Nevada, and it will take the state about one week to process the dissolution.

Penalties for Improper Dissolution in Nevada

Corporations that improperly dissolve in Nevada must pay at least $125 annually and a $75 late penalty for missed annual reports. They may pay even more if they have a significant amount of authorized stock.

A corporation must pay $200 annually and $100 late fee for missing its business license filings. A reinstatement form and a $300 fee are required if filed within five years. After five years, a corporation can file a certificate of revival or incorporate as a new corporation.

Changing Domicile or "Foreign Entity"

A business moving from the state of its formation (in this case, Nevada) to another state would need to change its domicile to that of the new state. A corporation can change domicile from any state but only into a domestication-supporting state.

"Domestication" is the term describing a company’s domicile or location. A business owner can change a company's domicile from any state, but may move it only to one that supports domestication – in this case, California.

Changing domestication allows a company to keep its EIN, as well as the company structure and even original formation date, depending on the state. A corporation is domestic in the state of organization, or the state where it started.

Operating in a Different State

A company can engage in business in a domestic state without having to undergo qualification. A company engaging in business in a state other than the one where it was formed typically has to qualify to do business in that state.

A "foreign" corporation typically must qualify to conduct business in another state if its business transactions meet specific requirements, including having a physical location in California or having employees working in the state.

The term "foreign" describes an out-of-state business, not a company that originates outside the United States. A corporation registered in Nevada that wishes to expand into California would have to file as a "foreign entity" within the state of California. This is also known as "foreign qualification."

Incorporating a Business in California

If a corporation dissolves in Nevada, it can reincorporate in California. Incorporating in California is not much different than incorporating in Nevada.

To incorporate in California, a company must complete these tasks:

  • Choose a corporate name that is distinguishable from other business names in the state and contains the words "Corporation," "Incorporated," or "Limited," or an abbreviation thereof.
  • File Articles of Incorporation with the California Secretary of State by mail or in person and pay a $100 fee.
  • Appoint a registered agent — a person or business accepting legal papers on the corporation's behalf in the event of litigation.
  • Appoint directors, prepare bylaws for the corporation and hold the first board meeting.
  • Issue stock.
  • File a Statement of Information with the California Secretary of State up to 90 days after filing the Articles of Incorporation.
  • Comply with state tax requirements.

"Doing Business" in California

The California Corporations Code defines doing business as "entering into repeated and successive transactions of its business in [the] state, other than interstate or foreign commerce." The statute does not list specific activities that amount to doing business in the Golden State, but it does have a nonexclusive list of activities that do not classify as doing business, such as:

  • Defending, maintaining or settling any suit, action or administrative or arbitration proceeding.
  • Achieving sales through independent contractors.
  • Transacting business in interstate commerce (between or among states).
  • Conducting a single transaction completed within 30 days, not in the course of repeated transactions of the same kind.

The state's Corporation Code further states that being a manager, member, shareholder or limited partner of a corporation, limited partnership, LLC or a similar entity conducting intrastate business is also not "doing business."

However, other types of indirect contact with California could trigger a qualification requirement. For example, an online business transacting in California would be required to qualify and pay taxes to do business in the state.

Registering a Corporation in California

A non-California corporation doing business in the state must register its business by filing a Statement and Designation by Foreign Corporation with the California Secretary of State's office. At the time of filing, the business must be in good standing in its location of organization – in this instance, Nevada.

Once the company is registered in California, it must file a Statement of Information with the secretary of state's office within 90 days and every year after that, or the company risks assessment for a penalty or forfeiture or suspension of its qualification.

Additionally, corporations "doing business" in California and holding property for charitable purposes must register with the California Attorney General within 30 days of first receiving charitable assets. They must then renew their registrations each year after that.

"Doing Business" Per State Revenue and Tax Code

"Doing business" in California, according to its Revenue and Tax Code is "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit." A company is said to be doing business in California if it is commercially domiciled in the state, meaning California is the principal place from which the business is managed or directed.

It is also doing business in California if its payroll, real estate or sales exceed these amounts as of 2021:

  • Sales: Threshold amount of $610,395 or 25 percent of the business' total sales.
  • Real Estate: Threshold amount of $61,040 or 25 percent of the business' real and tangible property.
  • Payroll: Threshold amount of $61,040 or 25 percent of the business's paid compensation.

Corporate Taxation in California

A corporation that has registered with the California Secretary of State must file a franchise tax return annually and pay a minimum tax of $800 each year, even if it operates at a loss. A company failing to comply with these requirements can expect to pay a $2,000 failure-to-file penalty and interest.

On April 25, 2019, California passed Assembly Bill No. 147, which requires retailers outside of the state to register with the the Department of Tax and Fee Administration (CDTFA) and collect a use tax if they have combined sales of personal and tangible property for delivery in the state exceeding $500,000 in the current or preceding year. This applies even if the business is below the threshold of California franchise tax.

Tax-exempt Corporations in California

Certain businesses may seek a California franchise and income tax exemption. Nonprofit entities are generally exempt, but this is not automatic; companies seeking tax-exempt status in California must apply for it. A company must receive an exempt status letter from the California Franchise Tax Board (FTB) to be exempt, even if it already has federal exemption.

To apply for tax-exempt status, a business must submit an FTB 3500 (Exemption Application) form or an FTB 3500A (Submission of Exemption Request) form to the California Tax Franchise Board.

Penalties for Not Complying With California Rules

California fines non-California corporations and individuals acting on their behalf if they have not complied with its qualification or taxation requirements.

For example, a person conducting business in California on behalf of a company outside of the state that has not registered to conduct business in California can face misdemeanor charges with penalties of up to $600, regardless of the position or title they may hold.

A corporation that is in California without registering with the secretary of state faces penalties of $20 per day while conducting unauthorized business. A company not qualified to do business in California cannot enforce its contracts in the state, and its failure to qualify may be used as a defense in a lawsuit brought against that company.

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