Q: What do I need to do with my c-corp after relocating to California from Illinois?
A few years back, I had incorporated a c-corp in Delaware, registered as a foreign entity in Illinois, and had a physical office with employees. Post-COVID, my business became 100% remote. I am currently the only W2 employee on the company’s payroll, with Illinois state taxes being deducted. I plan to continue for up to two more years and either do better or shutdown.
Recently, I relocated to California and need guidance on the following:
- Do I need to register as a foreign corporation in California and withdraw my foreign corporation status in Illinois?
- If yes to above, and given my situation, is it better to close Delaware and Illinois corps and register as a fresh California c-corp or are there advantages to staying as a CA foreign corp for the time being?
- Do I need to switch my payroll to California now, or can it be done after the corporation status is changed?
- What would be the sequence or timing of actions to take?
- Tax implications?
Much appreciated.
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A:
When relocating your C-corp to California, you need to register it as a foreign corporation in California since you are now operating from there. This involves filing specific forms with the California Secretary of State and potentially paying applicable fees. You may also need to withdraw your foreign corporation status in Illinois if you are no longer conducting business there.
Whether to keep your corporation in Delaware or register anew in California depends on your business strategy. Maintaining the Delaware registration and registering as a foreign entity in California could be advantageous due to Delaware's favorable corporate laws and lower franchise taxes. However, if you see no benefit in keeping the Delaware corporation, dissolving it and starting fresh in California may simplify future compliance and reduce costs.
Regarding payroll, you need to start withholding California state taxes now that you are physically located in California. The sequence of actions should generally be: register as a foreign entity in California, update your business address and payroll to reflect California, and then decide on the status of your Illinois registration. Be mindful of the tax implications at both the state and federal levels, including potential tax obligations in both California and Delaware, depending on the structure you choose. Consulting with a legal or tax professional in California could help you navigate these steps effectively.
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