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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 38444
Experience:  Retired (mostly)
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You mentioned that a Delaware C corporation with no significant

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You mentioned that a Delaware C corporation with no significant business assets that does not generate revenue in California does not need to register in California even though my business is domiciled here.

What if my C corp has patents? Are those significant business assets by your definition?

What if my company is suddenly valued at 2 million because of its patents and/or other intangibles. If I then try to sell the company, am I in trouble because the NDAs I executed are all null and void and the potential buyer would be vulnerable to law suits by competitors?
Hello,

Who exactly "mentioned" this legal assertion?
Customer: replied 3 years ago.

it was another lawyer on Just Answer. It was in response to a simple question someone had about whether they needed to register their Delaware C corp in California. The first reply was from someone who said simply "not unless the business has significant assets". The questioner then asked what is the meaning of "significant assets". The next lawyer who responded swapped out the words "significant assets" with "significant operations" to explain what the criteria was for registering in the state.


 


Not too helpful....

If you paid for those answers, you ought to demand a refund. Now for the actual law.

Cal. Corps. Code 191, provides a comprehensive list of what does not qualify as transacting business within California for the purposes of registering a foreign corporation. The general rule for transacting business found in subdv. (a), which states that transacting business "means entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce."

The question for you is whether or not you will be engaged in transactions, such as negotiating contracts over your patents with others, within or without California. If yes, then you are transacting business in California and your corporation must be registered, because if it is not, then under Corps. Code 2203(c), "A foreign corporation subject to the provisions of Chapter 21 (commencing with Section 2100) which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state."

In short, if you're not registered as a foreign corporation, and you are transacting business in the state, then you will automatically lose any lawsuit brought against you by any adverse party.

Please let me know if I can be of further assistance.

Hope this helps.
Customer: replied 3 years ago.

Thanks.


 


Can you confirm that my NDAs are valid, even if they are with California entities though I am not registered?


 


Note that my corp is three years old and I have had no revenue.


 


I have regularly paid my California lawyer and my California accountant during this period.


 


Also, I have paid for subscriptions for cloud based productivity software and have occasionally paid for casual administrative work. I don't know if this qualifies as transacting business in the state by the definition above.


 


Final Question: Are you able to say in general whether I have, to date, jeopardized the legal integrity of my business in any way by not registering with the State?


 


If this requires a further consultation, I'm happy to pay.


 


Thanks.


 


 


 


 

Can you confirm that my NDAs are valid, even if they are with California entities though I am not registered?

A: The NDAs are valid, but if you have to enforce them, you will have to register as a foreign corporation before you are able to maintain a legal action in a California court against any of the potential defendants.

Note that my corp is three years old and I have had no revenue.


A: Understood.

I have regularly paid my California lawyer and my California accountant during this period.


A: This would constitute transacting business in California, unless these activities are connected to the maintenance or defense of a legal action or arbitration or administrative proceeding within the state -- or only concerned the carrying on of the corporation's internal affairs.

Also, I have paid for subscriptions for cloud based productivity software and have occasionally paid for casual administrative work. I don't know if this qualifies as transacting business in the state by the definition above.

 

A: If the administrative work is connected to the corporation's internal affairs, then there is no transacting intrastate business. Whereas, negotiating NDAs with outside entities is not an internal affair, and so may be transacting intrastate business.


Final Question: Are you able to say in general whether I have, to date, jeopardized the legal integrity of my business in any way by not registering with the State?

 

A: I believe that you need to register as a foreign corporation. However, I do not believe you have jeopardized your existing contracts, because you can merely register your corporation should you need to enforce them. However, if the Franchise Tax Board determines that you were transacting business within the state prior to the date of your registration, then you will be assessed the $800 minimum corporations tax for every year that you were transacting business without registering.

 

Hope this helps.

Hello again,

I inadvertently omitted the legal authority for my conclusion that your NDAs are valid. Please permit me to remedy that oversight: United Medical Management Ltd. v. Gatto, 49 Cal. App. 4th 1732 (Cal. App. 2nd. 10/16/1996) ("[A] foreign corporation which qualifies to transact intrastate business after transacting, but prior to commencing an action on, intrastate business may maintain the action without complying with section 2203, subdivision (c)).

Best wishes.
Customer: replied 3 years ago.

Hi,


 


Thanks much for that follow up. It's really helpful to have these citations.


 


I would like to ask for one more response which I think requires just a short response. If it requires more explanation, I'm happy to post it as another question.


 


------


 


Actually, I have already been paying the FTB annually. This means, that the FTB believes I have been transacting business in California.


 


Even though I have been transacting business in California in the eyes of the FTB, I have not registered with the state.


 


If I register with the state now, is my failure to register previously any kind of a problem?


 


Many thanks,


 


Jack

I would like to ask for one more response which I think requires just a short response. If it requires more explanation, I'm happy to post it as another question.

A: You can leave a tip/bonus, if you choose.

Actually, I have already been paying the FTB annually. This means, that the FTB believes I have been transacting business in California.


A: That's interesting. Then, you really have no reason not to register the corporation, because the annual cost is negligible. ($5.00, I believe).


Even though I have been transacting business in California in the eyes of the FTB, I have not registered with the state.


If I register with the state now, is my failure to register previously any kind of a problem?

 

A: In theory, you could get a $250 penalty, plus $20 per day for unlawfully transacting intrastate. But, it's not routinely enforced, because the Attorney General or county District Attorney must be involved, and the Secretary of State doesn't refer anything but the most egregious cases for prosecution.


If you're worried about it, then file a final return with the FTB for the foreign corporation, and then form a new corp, either California or Delaware, assign all of your contracts, patents, etc. to the new corporation, and then dissolve the old corporation. Then there will be no nexus between the old corporation and the Secretary of State, so no way to determine that you were ever operating without registration.

 

Hope this helps.

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