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CALIFORNIA CORPORATE & SECURITIES LAW

O Frabjous Day! Court Holds Passive Member Is Not “Doing Business”

The State of California imposes its franchise tax on every corporation (other than a bank, financial corporation or exempt corporation) that is “doing business” in California.  Cal. Rev. & Tax Code § 23151.  This tax is imposed without regard to whether the corporation is incorporated in California.  This makes the name of the tax somewhat misleading…

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Suspension By The Franchise Tax Board

Yesterday’s post concerned the two circumstances in which the Secretary of State might suspend a corporation.  The California Franchise Tax Board will suspend a corporation if it fails to pay taxes, penalties, fees or interest (Cal. Rev. & Tax. Code § 23301) or fails to file a return (Cal. Rev. & Tax. Code § 23301.5). These…

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What’s So Special About An 80% Doing Business Threshold?

In yesterday’s post, I dipped into the SEC’s proposed amendments to Rule 147, a safe harbor for intrastate offerings exempt from registration pursuant to Section 3(a)(11) of the Securities Act of 1933.  Among other things, the SEC is proposing to jettison the current requirement of Rule 147 that limits the availability of the rule to issuers organized…

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Judge Rules Against FTB In “Doing Business” Definition

Over a year ago, I wrote about an Iowa corporation, Swart Enterprises, Inc., which operates a 60 acre farm in Kansas. Swart has no physical presence in California. It owns no real or personal property in California.  However, Swart had invested $50,000 investment in a manager-managed California LLC.  Swart’s investment represented an ownership interest in the LLC…

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The Franchise Tax Board’s Doing Business Legal Ruling – Ex Nihilo, Aliquid Fit

Today’s post will try to put the Franchise Tax Board’s recent Legal Ruling 2014-01 in perspective by imagining the following inquisition by the Franchise Tax Board: FTB: We suspect that you are doing business in California and have failed to file your tax returns and pay taxes and fees. Corporation:  Surely, you must be mistaken.  We don’t…

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FTB Issues Legal Ruling Addressing Filing And Franchise Tax Obligations of LLCs And Their Members

I’ve written several posts on discussing the meaning and ramifications of “doing business” for California tax purposes.  See, e.g., Why Your LLC May Be Doing More Than You Think In California Even When It’s Doing Nothing, 60 Acres And A Lawsuit Challenging The FTB’s Interpretation of “Doing Business” (sorry, I don’t know the current status of…

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Why Your LLC May Be Doing More Than You Think In California Even When It’s Doing Nothing

Until two years ago, determining whether a company was “doing business” in California depended upon whether it was “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit”.  Cal. Rev. & Tax. Code § 23101.  While this is a very open-ended definition, the statute at least required that a taxpayer be actively engage in a transaction.  Requiring…

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60 Acres And A Lawsuit Challenging The FTB’s Interpretation of “Doing Business”

Swart Enterprises, Inc. is an Iowa corporation.  It operates a farm with some 60 acres of crop land in Kansas.  Swart has no physical presence in California.  It owns no real or personal property in California.  It has no California employees.  Swart’s sole connection to California is as an investor in a fund that trades in…

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Bill Aims To Make Foreign Nonqualified LLC Contracts Voidable

As discussed in prior posts, “transacting intrastate business” is not the same as “doing business”.  See You may Be Doing Business in California Even When Not Transacting Intrastate Business.  The former is what determines whether a foreign corporation or limited liability company must qualify with the California Secretary of State.   The latter determines whether…

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The FTB’s “Doing Business” Trap For Foreign LLCs With California Managers, Members Or Agents

According to the California Franchise Tax Board, a limited liability company classified as a partnership must do all of the following: File Form 568 (limited liability company return of income); Pay an annual tax of $800; Pay an annual LLC fee based on total income from all sources derived from or attributable to California. An LLC…

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