Operating in a Foreign Jurisdiction Without Having to Qualify the Corporation

Since most people who form Nevada corporations reside in jurisdictions other than Nevada, one of the first questions that needs to be addressed is how to properly use the corporation while they themselves operate from within their home state (or country). Is it necessary to register or qualify the Nevada corporation to do business within their jurisdiction? Often it is—especially if there is a physical presence involving employees—but there are often many useful exceptions to the rule.

Let’s look at the exemptions from qualification in the State of California—which is generally known for both its stringent regulations and its repressive taxation—to see what “loopholes” exist. You should look up the regulations in your own particular jurisdiction but as a general rule they will tend to be quite similar.

Business Exempt from Qualification in the State of California

Without excluding other activities which may constitute transacting business, a foreign corporation shall not be considered to be transacting business solely by reason of carrying on any one or more of the following activities:

1. A foreign corporation shall not be considered to be transacting intrastate business merely because its subsidiary transacts intrastate business.
2. Maintaining or defending any action or suit or administrative action.
3. Holding meetings of its board or shareholders or carrying out other activities concerning its internal affairs.
4. Maintaining bank accounts.
5. Maintaining offices or agencies for the transfer, exchange or registration of its securities.
6. Effecting sales through independent contractors.
7. Soliciting or procuring orders either by mail or through employees or agents or otherwise where such orders require acceptance without this state before becoming binding contracts.
8. Creating evidences of debt or mortgages on real property.
9. Conducting an isolated transaction within a period of 180 days and not in the course of a number of repeated transactions of like nature.

We have highlighted number 6 because this provision is used by an increasing number of businesses in the area of consulting. When the consultant is an independent contractor and the income is earned by a Nevada corporation, the corporation has no presence in the foreign jurisdiction, only the contractor does. So, the contractor must pay home-state tax on his income but the corporation earns its income in Nevada.  There can be tremendous tax savings if the contractor lives modestly and draws only what is needed to meet living expenses.

Where the business is more product-related rather than service-related, provision number 7 can come into play. Just ensure that the orders generated require acceptance from Nevada before becoming binding contracts!