Doing Business in California: “Transacting Intrastate Business”
We have previously written about doing business in California, and how the California Corporations Code uses a “transacting intrastate business” test. Importantly, if a corporation or other entity is deemed to be doing business in California under the “transacting intrastate business” test, that entity must obtain a “Certificate of Qualification” under Corporations Code § 2105. This post will look at what will and will not constitute “transacting intrastate business.”
Transacting Intrastate Business
Transacting intrastate business means that the entity or some part thereof enters into or conducts repeated and successive business transactions (sales, deals, etc.) in California. Like many legal tests, certain factors will be weighed to determine whether or not the test is satisfied. To assist courts and businesses in determining what may or may not qualify as transacting intrastate business, Corporations Code § 191 sets out what activities will not be considered to be transacting intrastate business, although a listed activity may be taken with other activities that, taken together, constitutes transacting intrastate business. Some of the protected activities include:
(1) Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or disputes.
(2) Holding meetings of its board or shareholders or carrying on other activities concerning its internal affairs.
(3) Maintaining bank accounts.
(4) Maintaining offices or agencies for the transfer, exchange, and registration of its securities or depositaries with relation to its securities.
(5) Effecting sales through independent contractors.
(6) Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where those orders require acceptance outside this state before becoming binding contracts.
(7) Creating evidences of debt or mortgages, liens or security interests on real or personal property.
(8) Conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.
Likewise, a foreign corporation will not be considered to be transacting intrastate business solely because one of its subsidiaries transacts intrastate business. A foreign corporation or other entity will also not be considered to be transacting intrastate business solely because of its status as any one or more of the following:
(1) It is a shareholder of a domestic corporation.
(2) It is a shareholder of a foreign corporation transacting intrastate business.
(3) It is a limited partner of a domestic limited partnership.
(4) It is a limited partner of a foreign limited partnership transacting intrastate business.
(5) It is a member or manager of a domestic limited liability company.
(6) It is a member or manager of a foreign limited liability company transacting intrastate business.
In addition to the above, it is important to note that, in the digital age, an entity conducting significant business over the internet may have sufficient contacts with California to allow a court to exercise personal jurisdiction over the entity. Furthermore, California law permits a plaintiff to conduct initial discovery against a defendant corporation or other entity to determine whether or not the corporation has been doing business within the state.