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California Waives Filing Fees for Formation and Foreign Qualification to Encourage New Business

By: Teri Mayor, COGENCY GLOBAL on Thu, Jul 07, 2022

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With the enactment of the new budget bill, SB154, California is taking the unusual step of waiving the initial formation and qualification filing fees for corporations, limited liability companies and limited partnerships. The fees will be waived for one year, from July 1, 2022, to June 30, 2023, in an effort to encourage new business in the state. Other processing and handling fees, such as over the counter and expedite fees will still apply.

Will waiving these initial filing fees cause those forming companies to choose California? What’s involved in choosing the jurisdiction of formation?

Choice of jurisdiction is one of the important decisions a company must make when first forming a limited liability entity, whether it is a corporation, an LLC or a LP. A company may choose to form in the jurisdiction where it is headquartered, where it plans to do business, or it may choose another jurisdiction. If the company decides to file its formation documents in one state and do business in another, an additional filing to qualify the company as a foreign entity will be required in the state where it is actually doing business.



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Choice of Jurisdiction: Some Contributing Factors

Filing fees can certainly play a role in encouraging businesses, particularly new start-ups. There are also other factors a company might consider when deciding where to file its formation documents.

Taxes and Annual Fees: A company may choose one state over another if the state has lower taxes and annual fees for maintaining the company on an ongoing basis. However, it’s important to remember that taxes and fees will also likely be due in the state where it is doing business. Forming in one state and registering to do business in another will mean the company must comply with the tax laws and compliance requirements in both states.

Business Requirements: In some situations, the laws of a particular state for a particular entity type may be considered the best option due to investor requirements, future plans, etc. A business attorney is best able to advise whether a particular jurisdiction and entity type is preferred.

State Courts: There are certain state courts that are known for their experience and large body of precedents in legal matters pertaining to businesses. This can allow for a greater understanding of how the court is likely to act in a given matter and be another factor in the choice of jurisdiction.

Regardless of which jurisdiction someone forming a company decides works best, if the company is doing business in California, it will need to either file its formation documents there or qualify to do business as a foreign company. In either case, for the next year, the filing fee to do so is free!

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.


Topics: Company Formation and Filing Considerations