Consulting Practice across State Lines

[bir]

I apologize if this is answered already, scanning the forums didn't turn up any relevant answers.

Currently I am in the process of starting a small consulting practice (software development) that is based in Texas. However I have a couple associates working for me that are mostly in California. Initially they are hourly (1099) but long term plan is to offer them full-time with benefits (w2). We are looking to close our first contract next month and it is substantial enough for me to relocate to Southern California for several months.

I spoke with my lawyer in Texas and he wasn't sure (given my temporary relocation to California) if I can operate under a Texas license. His assumption is that California will have a form (similar to Texas) that allows my company to register as a foreign entity doing business in California. But his concern is that by relocating (although keeping my permanent residence in Texas) it will come up on the radar for California and cause me more headache than just registering in California as an entity.

Recommendations? Can I keep my entity (LLC) in Texas and just file some paperwork to make CA happy, or do I need to create a new entity just for my time in CA?

[JLeezer]

Not too sure on the laws of California. You may want to talk to a lawyer is CA, or better yet, get your TX and CA lawyers on the phone for a (quick, very quick) discussion.

On a side note, however, just because someone is paid hourly does not mean that they are automatically eligible to be considered an independent contractor (they receive a form 1099 at year-end). Hopefully you have had your lawyer look at this, but you may also want to have your accountant look at it too, as it is really a tax issue, not a legal issue. Going forward, do not make the assumption that because you are paying someone hourly that they too will be an independent contractor. Just thought I'd point that out in case you hadn't verified their correct status yet.

[bir]

My lawyer suggested getting a lawyer in California as well, he just didn't have any one to recommend. I'll have to do the legwork today.

And yes, my accountant is fully aware of the plans and making sure we cover all the points required by the IRS for correctly handling 1099 versus w2.