Delaware C startup with 3 founders physically working in different states. How many foreign corporations are needed?
San Francisco, CA |
We are an Internet startup (incorporated in Delaware) with 3 founders working remotely in different states in the US. Do we need foreign corporations in all these states? What do we need to do in those states?
As long as the founders are stockholders and/or employees of the Delaware corporation, you shouldn't need separate corporations in all 3 states. Instead, you qualify the Delaware corporation to do business in those states. In most states, you can do this through the Secretary of State (or "of the Commonwealth" in MA, PA, VA, and KY); some states, like Arizona, use a separate entity like a Corporations Commission.
The question cannot be answered without understanding whether the activity that takes place in each state would be considered "business activity" as defined by that particular state.
CA, for example, has a very broad interpretation of biz activity (basically if you are a business and breathe over CA state lines, they would consider you as doing business there).
Obvioulsy that was cheeky, but certainly any consistent and ongoing presence is biz activity (e.g., having a showroom, salespeople, physical address/space, real property, live events, etc) all would be biz activity and you should qualify the entity there. What is not biz activity are things like an online retail store where you send product to various states. Most states have exceptions to such online activity and would not consider that a systematic and continuous presence.
We have a client, for example, in the real estate education space that hosts live seminars and programs around the country (often and regularly). As a result, we qualified them in something like 38 states as needed.
I suggest you discuss your plans in private with a lawyer. Most of us here, including myself, offer a free phone consult. I will link you to a brief overview on this topic below as well.
The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the areas of business law and intellectual property to entrepreneurs, small-to-medium size businesses, independent inventors and artists across the nation and abroad. Feel free to call for a free phone consultation; your inquiries are always welcome:
DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.
I believe that you are asking: In which states must the DE corporation register as a foreign corporation?
In CA, the test is whether the corporation, through its founders or otherwise, is engaging in "repeated and successive transactions" within the state. (Please see the post at the link below.) If so, then the corporation must qualify in CA as a foreign corporation.
The other states in which founders are working will have their own tests, which will be different from the CA test.
This information does not constitute legal advice and does not establish an attorney-client relationship.