What is ‘doing business’ in California?
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LAST UPDATED: Sep. 2019
Several California privacy laws apply only to entities that ‘do business’ in California (e.g. CCPA and CalFIPA). This article discusses the concept of ‘doing business’ in California.
The EU counterpart to the ‘doing business’ is the concept of ‘establishment’.
Doing business in California does not require a formal registration or physical presence in the State. May persons and companies who collect persona information from California residents are probably conducting “business in California” one way or another. ‘Doing business’ in California is used and has been defined under California Corporate law to mean “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.” See Cal. Corp Code Sec. 191(a)
Examples of situations that do NOT automatically result in “doing business” in California include:
- The fact that a subsidiary of the organization “transacts intrastate business”; the mere fact that the organization is (i) a shareholder of a domestic corporation; (ii) a shareholder of a foreign corporation transacting intrastate business; (iii) a limited partner of a domestic limited partnership; (iii) a limited partner of a foreign limited partnership transacting intrastate business; (iv) a member or manager of a domestic limited liability company; or (v) a member or manager of a foreign limited liability company transacting intrastate business.
- The sole fact the the organization is carrying on in California any one or more of the following activities: (1) maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or disputes; (2) holding meetings of its board or shareholders or carrying on other activities concerning its internal affairs; (3) maintaining bank accounts; (4) maintaining offices or agencies for the transfer, exchange, and registration of its securities or depositaries with relation to its securities; (5) effecting sales through independent contractors; (6) soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where those orders require acceptance outside this state before becoming binding contracts; (7) creating evidences of debt or mortgages, liens or security interests on real or personal property; (8) conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.
- Foreign lending institutions (e.g. foreign banking corporation, savings and loan association, or insurance company) are not be considered to be doing, transacting or engaging in business in California solely by reason of engaging in any or all of the following activities: (1) the acquisition by purchase, by contract to purchase, by making of advance commitments to purchase or by assignment of loans, secured or unsecured, or any interest therein, if those activities are carried on from outside this state by the lending institution; (2) the making by an officer or employee of physical inspections and appraisals of real or personal property securing or proposed to secure any loan, if the officer or employee making any physical inspection or appraisal is not a resident of and does not maintain a place of business for that purpose in this state; (3) the ownership of any loans and the enforcement of any loans by trustee’s sale, judicial process or deed in lieu of foreclosure or otherwise; (4) the modification, renewal, extension, transfer or sale of loans or the acceptance of additional or substitute security therefor or the full or partial release of the security therefor or the acceptance of substitute or additional obligors thereon, if the activities are carried on from outside this state by the lending institution; (5) the engaging by contractural arrangement of a corporation, firm or association, qualified to do business in this state, that is not a subsidiary or parent of the lending institution and that is not under common management with the lending institution, to make collections and to service loans in any manner whatsoever, including the payment of ground rents, taxes, assessments, insurance, and the like and the making, on behalf of the lending institution, of physical inspections and appraisals of real or personal property securing any loans or proposed to secure any loans, and the performance of any such engagement; (6) the acquisition of title to the real or personal property covered by any mortgage, deed of trust or other security instrument by trustee’s sale, judicial sale, foreclosure or deed in lieu of foreclosure, or for the purpose of transferring title to any federal agency or instrumentality as the insurer or guarantor of any loan, and the retention of title to any real or personal property so acquired pending the orderly sale or other disposition thereof; (7) the engaging in activities necessary or appropriate to carry out any of the foregoing activities.
See Cal. Corp Code Sec. 191(b)-(d)
Under the California Corporate Code foreign entities (i.e. entities not incorporated in California) “doing business” in California are required to comply with certain provisions of California tax and corporate law. There is relevant jurisprudence on the concept of ‘doing business’ (see, for example, Hurst v. Buczek Enters. LLC 870 F. Supp. 2d 810, 818–19).
The determination of whether an entity does business in California is factual in nature. Physical presence in California is a factor that tends to show an entity is ‘doing business’ in California but it is not always required (i.e. an entity may be doing business in California even when it does not have physical presence in the State — see Hurst).
Factors that tend to indicate an entity is ‘doing business’ in California include:
- physical presence in California (for example, an office or building, but for online entities it often comes down to where the servers are located and where the banking is done),
- having employees in California, and
- holding special licenses to conduct business within California.
Factors that typically do not indicate an entity is “doing business in California” include:
- maintaining, defending, or settling any action before a California court;
- holding meetings of directors, managers or shareholders;
- maintaining bank accounts;
- selling through independent contractors;
- soliciting or procuring orders if the orders require acceptance outside of California before becoming binding contracts.
NOTE: “Doing business” in California under the California Consumer Privacy Act: Although a final answer will not be available until guidance is provided by the California Attorney General office, a logical interpretation would be that, at the minimum, both entities incorporated in California and entities required to register in California as ‘foreign entities’ under existing California Corporate and Tax law ‘do business’ in California (i.e. are ‘established‘) for the purposes of CCPA.
