Qualifying a Foreign Corporation in California: S&DC-S/N and Your Agent for Service of Process

Anything incorporated outside California, in another state or another country, is a foreign corporation here. California's own word for getting permission to operate is qualification, and the Secretary of State answers it with a certificate of qualification (Corporations Code sections 2105 and 2106). Its FAQ also uses the words qualify and register interchangeably.

The filing is the Statement and Designation by Foreign Corporation, Form S&DC-S/N, and the same form covers stock corporations and nonprofits. The Secretary of State's Sacramento office, through its Business Entities division, handles it. Qualifying does not turn the company into a California corporation. It stays governed by its home state, and it simply gains the right to transact intrastate business here and a public record naming its California agent.

Section 191 defines transacting intrastate business as entering into repeated and successive transactions of the corporation's business inside the state, with interstate and foreign commerce left out. One sale is not that. The office tells readers outright that it is unable to say whether a given business must qualify, and it points them to private counsel.

Activities that do not count by themselves

The statute names these, and adds that the list does not exclude other activities:

• Defending or bringing a lawsuit or arbitration, and settling disputes
• Board or shareholder meetings and other internal affairs
• Keeping bank accounts
• Selling through independent contractors
• Soliciting orders whose acceptance happens outside the state, before which they bind no one
• Creating debts, mortgages, liens or security interests
• A single transaction closed within 180 days and unrelated to any run of similar ones

Owning a subsidiary that does business here, or being a shareholder in another company, does not make the parent a California business either. The statute is silent on simply owning property, so it neither lists that as a trigger nor as an exemption.

The tax test is a different test

The Franchise Tax Board says a foreign corporation that does business in California is subject to the franchise tax whether or not it ever qualified with the Secretary of State. So the registration question and the tax question have separate answers, and a company with real California sales, staff or property should consider both with a California tax professional.

The Secretary of State's fee for the stock corporation version is $100. Most filers use bizfile Online, where submissions are reviewed ahead of paper. On paper, mail the form with a check or money order payable to the Secretary of State. Dropping it off in person adds a $15 special handling fee that mail filers do not pay. The office publishes no processing time, only the dates it is currently reviewing.

What the form asks for

• The corporation's name as it appears on the good standing certificate
• The jurisdiction of incorporation, which has to match that certificate
• The street address of the principal executive office, with no P.O. box
• A California principal office address, if the corporation has one
• A mailing address, if different
• The agent for service of process: either a registered corporate agent identified by name alone, or an individual who supplies a California street address
• Signature by a corporate officer who is authorized to sign

Section 2105 also has the corporation state that it is authorized to exercise its powers where it was incorporated and give its irrevocable consent to service of process on the agent, and on the Secretary of State if the agent cannot be found. If the corporation's name is not available in California, the statute lets it qualify under an alternate name that it then uses for its California dealings.

California does require one. The form says it must be submitted with a current certificate of good standing issued by the government agency where the corporation was incorporated, and section 2105(b) calls for a certificate from an authorized public official of that state or country showing the corporation as an existing entity in good standing. The Franchise Tax Board's description of qualifying also mentions an original certificate.

Request it from the office that keeps corporate records where you incorporated, not from California. That jurisdiction sets the price. Neither the form nor section 2105 gives a number of days for how old it may be, only that it is current, so order a fresh one shortly before you file. The state named on the certificate must match the jurisdiction you enter on the form. If your corporation is not in good standing at home, that has to be fixed before California will accept the filing.

The agent

California's term is agent for service of process. The statement must designate either a natural person who lives in California, listed with a complete street address, or a corporation that has filed a certificate under section 1505. A corporate agent appears by name only. A company cannot appoint itself, and the Secretary of State advises getting approval from a registered corporate agent before you name it. Whoever is named, the agent's name and street address will be open to the public.

A corporation can file a section 1505 certificate only if it is currently authorized to do business in California and in good standing. That certificate lists each California office where process may be served and the people there who may receive it.

Changes of agent

To change the agent or the agent's address, file a current Statement of Information. A corporate name change instead goes on an amended statement (Form ASDC, $30). Should the agent resign or be impossible to find, a court may direct that papers be handed to the Secretary of State, which completes service on the tenth day.

A corporation based elsewhere seldom has a California resident to name, which is why most use a registered corporate agent.

What comes back every year is the Statement of Information, Form SI-550. Its first deadline is 90 days after the original statement, and it repeats annually, with a $25 fee on the Secretary of State's schedule. A corporation that misses it can be hit with a $250 penalty collected by the Franchise Tax Board, and repeated failure leads to suspension.

The Franchise Tax Board administers the franchise tax. Every corporation that is incorporated, registered or doing business in California owes the $800 minimum franchise tax, though newly qualified corporations are not required to pay it for their first taxable year. Returns and payments follow the Board's due dates, not the Secretary of State's.

Closing the California registration

A corporation that stops doing business in California files a Certificate of Surrender (Form CORP-SURC), which has no fee. The Franchise Tax Board separately expects a final return for the last year of California business.

Several things can follow from transacting intrastate business without a certificate of qualification.

• A daily penalty. Section 2203(a) says the corporation may be subject to $20 for each day of willful unauthorized intrastate business, and a court sets the amount based on circumstances such as size and willfulness.
• Court access. Until it files the section 2105 statement, the corporation cannot maintain an action on that intrastate business in a California court. It must also pay a $250 penalty, the filing fees and the franchise and other business taxes that should have been paid for the period, and file receipts with the court.
• Consent to jurisdiction. By transacting unauthorized business it is treated as consenting to the jurisdiction of California courts in civil actions arising here.
• A tax penalty. If the Franchise Tax Board sends a notice and demand to file and a nonqualified foreign corporation that is doing business here does not file within 60 days, the Board imposes $2,000 per taxable year unless there is reasonable cause (Revenue and Taxation Code section 19135).

The money exposure in California comes largely from the tax side, which is another reason to settle the question early.

Mainstay's foreign qualification service qualifies a corporation formed elsewhere. It prepares the Statement and Designation and sends it to the California Secretary of State, includes the California agent for service of process at no charge for the first year, and renews the agent at $149 a year after that. The state's fee is $100. You provide the corporation's details and the certificate of good standing you order from your home state. Mainstay does not order home-state certificates.

The service ends at the filing. Statements of Information, franchise tax returns and any Franchise Tax Board correspondence stay with you or your accountant. For the checkout lines and today's total, see the California foreign qualification page. More about the agent is on the California registered agent page. Mainstay is not a law firm and cannot say whether your activity requires qualification.