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What is a Certificate of Qualification?
If you are a San Diego corporation, to become incorporated, you had to file and obtain articles of incorporation from the California Secretary of State. You also have annual filing and tax requirements with the California Franchise Tax Board. By contrast, if you are a foreign corporation — a corporation organized under the laws of another state — and if your foreign corporation is “transacting business within California,” then your corporation must file will with the Secretary of State and receive what is called a Certificate of Qualification. A good San Diego corporate attorney can help.
San Diego Corporate Law: How to Obtain a Certificate of Qualification
Qualification of foreign corporations is governed by Cal. Corp. Code, § 2100 et seq. Section 2105 directs that no foreign corporation may transact business within California without first obtaining a Certificate of Qualification. To obtain the certificate, the foreign corporation must file with the Secretary of State and provide various information including:
- Name of corporation — which must be unique and not be in use already by another corporation
- State of incorporation
- Name and address for an agent upon whom process may be served
- Irrevocable consent for service of process
- Statement of compliance with certain insurance requirements (if applicable)
Once the filing is complete and the fees paid, the Secretary of State issues the Certificate of Qualification which allows the foreign corporation to legally transact business in California. Once a foreign corporation has filed with the Secretary of State, it is then subject to the Franchise Tax Board.
San Diego Corporate Law: Consequences of Failing to Obtain a Certificate of Qualification
Failing to obtain a Certificate of Qualification has similar effects to failing to keep your California corporation in good standing. If the foreign corporation fails to obtain the certification, then
- The foreign corporation cannot file or maintain or defend a lawsuit
- Is subject to a $20.00 per day fine
- May be prosecuted by the California Attorney General
Note that failing to obtain a certificate does not avoid the possible of BEING sued. According to the statute, if a foreign corporation is transacting unauthorized business in California, the corporation is deemed to have consented to the jurisdiction of California courts and can be sued.
As a practical matter, the issue of not having a Certificate of Qualification must be raised by the various litigants in in the litigation. The unpublished case of Billuni v. Myers, No. G048130 (Cal. App. 4th Dist. 2014) is a good example. In that case, involving a car dealership, the dealership did not register as a foreign corporation because it did not want to be subject to the California Department of Insurance.
The court held that, generally, a defendant must assert the lack of qualification and that, failure to raise the issue, amounts to a waiver. The court stated that two other requirements must be met – the issue(s) in the litigation must “relate to” the transacting of intrastate business and the transactions must have occurred prior to the foreign corporation obtaining a Certificate of Qualification. In the Billuni case, the court held that the dealership was clearly involved in “intrastate commerce” – that is, doing business in California. The court noted that Cal. Corp. Code, § 191(a) defines transacting intrastate business to mean ” … entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.” The court also held that the dealership had failed to obtain a Certificate of Qualification. But, the Court of Appeals held that the issue had been waived because the defendant failed to apprise the trial court of the lack of qualification.
Contact San Diego Corporate Law Today
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the expertise to help you obtain a Certificate of Qualification and can keep your corporation in good standing. Mr. Leonard can also help if you want to form a California corporation. Mr. Leonard can also create and review buy-sell agreements, draft and review business contracts, and can assist with any business-related matter. Contact Mr. Leonard via email or by telephone at (858) 483-9200.
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