Tag Archives: LLC

Doing Business in California: The Franchise Tax Board Definition

Many people ask about incorporating or forming an LLC in a state other than California. California law changed a few years back, and made it more clear what it means to be “DOING BUSINESS IN CALIFORNIA.” The California Franchise Tax Board (FTB) has provided guidance on the subject, which can be found at . The following is a brief summary:

“For taxable years beginning on or after 1/1/2011, a taxpayer is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied:”
 The taxpayer is organized or commercially domiciled in California.
 Sales of the taxpayer in California, whether by the taxpayer or its agents or independent contractors, exceed an indexed amount, which in 2013 was $518,162, or 25 percent of the taxpayer’s total sales.
 Real and tangible personal property of the taxpayer in California exceed an indexed amount, which in 2013 was the lesser of $51,816 or 25 percent of the taxpayer’s total real and tangible personal property.
 The amount paid in California by the taxpayer for compensation exceeds an indexed amount, which in 2013 was the lesser of $51,816 or 25 percent of the total compensation paid by the taxpayer.

All of the above items include the taxpayer’s pro rata or distributive share of pass-through entities (partnerships, an LLC treated as a partnership, or an “S” corporation). Indexed amounts for 2014 are not yet available from the FTB.

The law affects out-of-state corporations, LLCs, and pass-through entities (partnerships, S corporations, LLCs treated as partnership) and their partners/shareholders/members that have property, payroll, or sales in this state. An out-of-state taxpayer that is considered to be doing business in California will need to file the appropriate tax return and pay the appropriate tax and fees.

Keep in mind that there are two basic tests. An out-of-state taxpayer that has less than the threshold amounts of property, payroll, and sales in California may still be considered doing business in this state if the taxpayer “actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California.”

The FTB guidance contains several examples, some of which include the application of exemptions to the rules. This is an important change in the law, of which all businesses formed or operating in other states should be aware.

Please let us know if we can be of assistance in this or any other business-related legal matters. Matthew I. Berger Law Group, A Professional Corporation: (805) 456-1200.

Does Your Business Name Belong to Someone Else?

Lately, there is a heightened awareness of trademarks, but many people have no idea whether the name they have chosen for their business is or contains someone else’s trademark. Keep in mind that (a) one acquires trademark rights by using a name in commerce, (b) the first to use the name has superior rights to those who come later, and (c) registration with the United States Patent and Trademark Office (USPTO) is not a prerequisite for obtaining enforceable rights in a trademark.

This became a reality for a client, who already had printed business cards, filed and published a fictitious business name statement, obtained a Board of Equalization License, began negotiating a lease in the business name, and drafted a business plan. We were consulted to form an LLC and found that the name was available with the Secretary of State’s office. Most would have concluded at that time that all was well and filed the Articles of Organization to register the LLC. We went further and looked at the USPTO website, and found that someone had filed an application to register the trademark of the exact name in the exact class of goods and services. While it would have been possible to register the LLC with the Secretary of State, it would have been an infringement of prior user’s trademark to actually do business under that name. Thus, it was back to the drawing board to select a new name.

It is critically important to clear your business name before you spend a lot of money, time, and energy. We suggest that a basic search be conducted and, if the name is clear, a full commercial trademark search then be conducted to ascertain its availability. The full commercial search will find registered marks, applications for registration, common law trademarks (those that have been in use but are not formally registered), and domain names. We also recommend that, as soon as you have cleared the name, acquire the Internet domain name in order to ensure that you have the rights on the Internet to your own trade name.

Matthew I. Berger Law Group, A Professional Corporation (805) 456-1200
10 E. Islay Street
Santa Barbara, CA 93101