FORMING A CALIFORNIA COMPANY AS A NON-RESIDENT OR FOREIGNER. California is the home to the technology revolution of the 21st century and entrepreneurs and businesses in the state have been responsible for creating 1.5 million new jobs since 2009. The state has an ever-evolving technology sector but that is not the only industry where you can start a company in California as a foreigner. If you are a non-US resident and want to form your startup in California then it is very possible. The process to start a US business for foreigners is similar to the process to register a California business domestically except for a few regulations and requirements that you need to be compliant with. This article will guide you through the requirements for forming a California company as a foreigner.
STARTING A COMPANY IN CALIFORNIA
There are 4.1 million small businesses based in California today and stand among the top ten largest economies in the world. In 2019, the gross domestic product (GDP) was approximately $3.14 trillion with foreign direct investments controlling ownership in several businesses in the state. Entrepreneurs from several countries find it attractive to start a company in California as foreigners with Japanese entrepreneurs and firms leading the table with 3,880 firms followed by the UK at 2,303 and France at 1,888. You can also choose to register any type of business entity like LLC, professional corporations, limited partnerships, and other business entities and the California business environment will ensure your startup gets the initial positive thrust it requires.
California business or startup environment
The California business environment and startup ecosystem is different from that of any other state and this makes the state unique in terms of forming your first startup. As an entrepreneur in California, the business environment ensures strong economic growth but there are certain elements of the ecosystem that work together to aid in business growth. Some of the top elements are:
- It is an economy that grows constantly and consistently – One of the top reasons to start a business in California is the trillion Dollar economy, which is still growing at a steady pace. Today, California is considered as the Sixth Largest Economy in the world and accounts for almost 13 percent of the US output. The economy is extremely diversified and not dependent on any single industry. The single largest industry sector in this state is services and includes computer and software design, engineering, and motion picture production among others. Some of the other sectors driving the California economy include finance, export or trade, manufacturing, and tourism. The economic activity also differs from one region to another. For example, the key industries in the San Francisco Bay Area are High-tech manufacturing and Software development while key industries in Southern California are Motion pictures and tourism. These are some of the elements driving the strong economy and enabling the functioning of a robust California business environment.
- Foreign Trade and Trade Zones – One of the areas that attract entrepreneurs to start a company in California as a foreigner is foreign trade. California exported to approximately 227 foreign markets like Japan, Canada, Mexico, China, and South Korea in 2020. The exports from California in 2020 were $156.1 billion and that accounted for 10.9% of the total U.S. exports. Foreign direct investment (FDI) in the state was approximately $45.49 billion in 2019 and the top industry sectors for FDI are business services, industrial equipment, software & IT services, financial services, and communications. California is also home to the highest number of small and medium-sized enterprises (SME’s) in the trade sector including exports and imports. One of the salient aspects is the Foreign Trade Zone (FTZ), which is a key element in creating a high-end California business environment. The FTZ is responsible for providing exporters, importers, distributors, and manufacturers with opportunities that help in reducing U.S. Customs duties and for deferring payment until their product leaves the foreign trade zone. One of the top foreign trade zones is the City of Industry in Los Angeles County.
- California business or startup environment – California has been a leader where innovation and knowledge-based economy is concerned and it is home to several successful global companies that are globally renowned for entrepreneurship and creativity. The State launched the California Innovation Hubs (iHub) Program in 2010 with the primary objective of leveraging convergence between incubators, stakeholders, and investors for propelling startups towards growth and success. California Innovation Hubs (iHub) Program is one of the most advanced and forward thinking programs that ensure you can start a company in California as a foreigner and enjoy its many benefits. The iHub has helped in creating a robust innovation-based economic development support network across the state. There are 16 iHubs that have been responsible for making the California business environment highly creative and vibrant. Some of the top iHubs include the Sacramento iHub, iGATE iHub, CalValleyTech iHub, iHub San Joaquin, San Jose/Silicon Valley ET iHub, and Innovate North State iHub among others.
STEPS TO FORM A CALIFORNIA COMPANY AS A FOREIGNER
If you are an entrepreneur thinking if it is possible to start a company in California as a foreigner then the answer is yes. The second most important aspect is restrictions and California does not impose any kind of restrictions on entrepreneurs or startups registered in the state. It is important to note that the regulations and documents required to register a California business as a non-US resident would be quite similar to that of a foreign company. Let’s take a look at the various processes and steps that you need to take to successfully establish your business as a foreigner in California.
1. Prepare your California business plan
Every business needs a plan before they can actually start a business in California and this holds true for non-US resident entrepreneurs and business owners. A strong business plan can take a new business towards success and a weak business plan can lead to bottlenecks and problems. A business plan is essentially a business roadmap that contains the primary and secondary business objectives as well as strategies.
A business plan provides a long view of where your company is, where it is expected to go, and how it will get to that point. This type of business roadmap provides a bird’s eye view of several aspects like the capacity (time and resources) of each team, individual contributions, fundraising, growth-related initiatives, infrastructure and improvements among others. What does a strong business plan entail? If you want to register a California business as a foreigner then a business plan should focus on the following areas:
- Vision and Mission Statement
- Executive Summary
- Company Description
- Long-Term Goals
- SWOT Analysis
- Competition and Market Analysis
- Breakdown of Products and Services
- Marketing Plan and Sales Strategy
- Financial Projections and Funding
2. Secure business funding
If you are planning to start a company in California as a foreigner then there may be higher initial costs depending on the type of business activity like an IT firm will need investments in tech equipment. The thumb rule is that it will cost money to start any type of business and the expenses include cost of registration or incorporation in the state along with obtaining licenses and permits.
Securing funding is one of the most important and key financial choices that you will have to make as a foreign or non-US resident entrepreneur. It is important to note that the funding opportunities chosen will affect the structure and the operations of the business. Some of the funding opportunities that you can benefit from before you register a California business are:
- Small business grants in California
- Venture capital from investors
- Use crowdfunding
- Small business loans
- Small Business Administration investment programs
- Angel Investment
- Funding from Business Incubators & Accelerators
- Loans from Microfinance Providers
- California Small Business and Entrepreneurship Assistance Center Funding Opportunities
3. Choose a company name
A business name is as important to your business as are your customers because a customer can relate your business name to the product or services offered by your company. In a way, a business name can help in creating an excellent first impression hence it is important to choose the right name before you start a company in California as a foreigner. When choosing a business name, it is essential to ensure it is unique but not a tongue twister.
Once you have chosen a name, it is recommended that you search for name availability in the California SOS database. According to the California Secretary of State, you will need to reserve the chosen name for a period of 60 days and should be distinguishable in the records from any other business name. Since you are planning to register a California business as a foreigner or non-resident, you will have to register the business name in compliance with California Corporations Code Section 2101.
4. Choose a business entity
If you have decided to start a business in California as a non-resident or foreigner then the primary consideration should be the type of business entity you want to form. The different types of entity you can form in California include:
- Limited Liability Company
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership
The type of entity you want to register as a California business will depend on your specific requirements and what you are planning to achieve. Each type of business has its advantages and disadvantages, risk areas, and rewards. Some of the factors that will help you to choose the right entity include:
- Cost of new business formation or start up costs
- Continuity and Transferability
- Liability and Asset protection
- Sharing of profits
5. Choose a Registered Agent
One of the primary requirements in the state of California for new businesses is hiring registered agent services. This is especially true if you plan to start a company in California as a foreigner. If you were to form a foreign corporation then it is mandatory to designate a registered agent for the service of process pursuant to CA Corp Code § 2102 and 2111 (2019). A California registered agent is also known as an agent for service of process and is appointed by a company mainly for the purpose of accepting all types of official correspondence and legal notices. A registered agent like IncParadise will not only handle service of process but can help you register a California business and also provide other business related services. IncParadise is one of the leading registered agent service providers in California today!
6. Register your company with California Secretary of State
There are several processes that you have to undergo in order to start a company in California as a foreigner. The first and foremost is registration of your business with the California Secretary of State. If you are a non-resident planning to register a California business then you will need to apply for foreign qualification. The type of registration will be dependent on the type of entity.
Entities like foreign corporations will be required to file a certificate of qualification pursuant to CA Corp Code § 2106 (2019) while foreign LLCs will need to file a certificate of registration with the Secretary of State pursuant to CA Corp Code § 17708.02 (2019). IncParadise, one of the top registered agents in California can help you with the process and filing your California company registration. You can order new LLC or INC online right here – right now and thus save valuable time.
Planning to start your new business in California?
7. Get EIN
If you are a Non-U.S. citizen and are planning to start a company in California as a foreigner then you will need to apply for and obtain an Employer Identification Number (EIN) without the need to have a Social Security Number (SSN). The EIN is a 9-digit unique identification number and is also known as a Federal Tax Identification Number (FEIN). You have to apply for the EIN with the Internal Revenue Service (IRS) and have to obtain it before you register a California business as a non-US resident. Since you will be incorporating or forming your new business in the US; EIN can be applied for online.
8. Open a bank account for your business
It is always recommended to open a business bank account if you are planning to start a business in California as a non-resident. A business bank account also known as a Business Checking Account will keep your business income and expenditure separate from personal income and expenses. This will also help you to manage expenses and file taxes. You can refer to our bank account opening guide to understand how business banking works in California or the U.S.
Each bank has its own USP and advantages like some banks offer night depository services and a minimum opening balance of just $100. Each bank also has their own set of requirements but some of the common documentation required by Non-US residents for a business bank account includes:
- Certificate of qualification or registration
- Federal Tax ID Number (EIN)
- Proof of address
- Photo ID (such as a valid passport)
- Copy of the Business License
9. Obtain necessary business licenses and permits
You can start a company in California as a foreigner in a variety of sectors but you will need to obtain a business license or permit first. Applying for and obtaining a business license basically means that you have the permission to operate your business or transact in the state of California. There is no separate requirement for non-US residents when applying for a business license except that you may require a single or multiple licenses depending on your business activity and location. Once you register a California business, you can apply for any of the following licenses:
- A general business license
- Business license/permits for specific industries
- County business licenses
You can also opt for our “Business License Research Report” service, which is an in-depth informative report that contains a list of filing instructions, license types, supporting documents required, and fees for business licenses and permits in California.
10. Know about the annual and ongoing state filing requirements
Once you start a business in California as a non-US resident, you will need to maintain it and ensure all annual requirements are met. This will help in keeping your business status active while helping you avoid any penalties or fines for non-compliance or late filings. Different types of business entities have different annual and ongoing requirements and some of them are:
- Name registration renewals
- California business license or permit renewals
- Statement of Information – Initial and Biennial
- Franchise tax
- State Business Tax
- State Employer Taxes
LOOKING TO START A COMPANY IN CALIFORNIA?
If you are planning to start a business in California as a non-US resident, you will require California registered agent services to help you with the formation or incorporation of your new business. IncParadise is one of the top California registered agents and we have helped thousands of companies to register a California business.
We can be your registered agent in the state of California and help you with all your annual and ongoing requirements so that your business meets all state compliances. We also provide many other additional services like EIN assistance, and S corporation filing among others.