| California is a notoriously bad state to do business in. | | | | The California Franchise Tax Board tends to look at |
| Regulations, worker's compensation and tax issues | | | | the facts surrounding a particular situation. Assume I |
| overwhelm companies. Seeking relief, many | | | | own a Nevada entity for the purpose of building web |
| incorporate in Nevada. Unless done carefully, this | | | | sites. I receive e-mail, snail mail and work out of my |
| decision can lead to disaster. | | | | house in San Diego. The tax agency is going to take |
| Doing Business - Jurisdiction | | | | the position that I am doing business in California. My |
| Jurisdiction is a legal term used to define who has | | | | office is here. I take calls here. I do the work here. This |
| authority over something. Applied to this article, the | | | | scenario is going to be very difficult to defend. Playing |
| term refers to the issue of which state has the right to | | | | out the scenario, I will probably end up going out of |
| regulate a business. In California, the issue boils down | | | | business due to disruptions, stress and the resulting |
| to whether you are considered to be "doing business" | | | | financial burden. |
| in the state. | | | | So, can you use Nevada business entities if you are in |
| California is the one of the most aggressive states | | | | California? Absolutely. Typically, you need to use a |
| when it comes to defining jurisdiction. If you maintain | | | | double incorporation strategy. Essentially, one entity is in |
| offices or have employees in the state, you are | | | | Nevada and another in California. One entity provides |
| considered to be doing business here. You must | | | | services to the other through a fair value contract, to |
| register with the state and pay taxes even if | | | | wit, you can't charge $1 an hour for services rendered. |
| incorporated in another state. This tends to makes | | | | The Nevada entity has to have a business license, |
| incorporating in Nevada an expensive option since you | | | | office, customary payables such as rent and the |
| have to pay fees twice. | | | | typical items you find with any business. This strategy |
| If you are caught "doing business" in California without | | | | is typically used to hold non-tangible business assets |
| having registered, you can be in for a rough time. | | | | such as intellectual property or patent rights. |
| Initially, back taxes and fees come due. You are also | | | | California has a brutal business climate. The |
| going to be fined and probably suspended from doing | | | | Governator has promised relief, but an actor making |
| business until an audit can occur. The California | | | | promises is, well, an actor making promises. Using |
| Employment Development Department may levy back | | | | Nevada entities can provide relief to your business as |
| taxes and penalties. Your bank accounts may be | | | | long as they are used correctly. |
| frozen. Let's look at an example. | | | | |