Sacramento, CA asked in Business Law for California

Q: Does my C Corp need to foreign qualify outside of DE?

I am the sole member of a DE C Corp that develops and sells subscription software products. For the past few years, I have lived and worked in CA, so I foreign qualified there but am unsure if that was necessary. Now, I am moving up to WA and would like to formally exit CA. Do I need to foreign qualify in WA or can I just stay incorporated in DE?

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1 Lawyer Answer
James L. Arrasmith
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  • Sacramento, CA
  • Licensed in California

A: As a Delaware C Corporation, your company is considered "domestic" in Delaware and "foreign" in all other states. Whether you need to foreign qualify in another state depends on the level of business activity your company conducts in that state. This is often referred to as "doing business" in a state.

Each state has its own definition of what constitutes "doing business," but generally, it includes factors such as:

1. Having a physical presence in the state (office, warehouse, etc.)

2. Having employees working in the state

3. Conducting a substantial amount of business transactions in the state

Based on the information you provided, it seems that you have been "doing business" in California, so foreign qualifying there was likely necessary.

Regarding your move to Washington, if you plan to continue running your business from there, it's likely that you'll need to foreign qualify in Washington as well. This is because you, as the sole member of the corporation, will be living and working in Washington.

To formally exit California, you'll need to file a Certificate of Surrender with the California Secretary of State. This will withdraw your corporation's right to transact business in California.

It's important to note that foreign qualifying in a state does not change your incorporation status in Delaware. Your company will still be a Delaware C Corporation, but it will be registered to do business in the states where you foreign qualify.

As always, it's best to consult with a business attorney or tax professional for specific advice tailored to your situation.

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