California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 1 - General Provisions and Definitions › Article 2 - Definitions › Section 23038(b)-2 - Business Entities; Definitions

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Business entities. For purposes of this
					 regulation and Reg. §
											23038(b) -
					 3, a business entity is any entity
					 recognized for California income and franchise tax purposes (including an
					 entity with a single owner that may be disregarded as an entity separate from
					 its owner under Reg. §
											23038(b) -
					 3) that is not properly classified
					 as a trust under Reg. §
											23038(a)(3) or
					 otherwise subject to special treatment under the Revenue and Taxation Code. A
					 business entity with two or more members is classified for California income
					 and franchise tax purposes as either a corporation or a partnership. A business
					 entity with only one owner is classified as an association taxable as a
					 corporation or is disregarded; if the entity is disregarded, its activities are
					 treated in the same manner as a sole proprietorship, branch, or division of the
					 owner.
(b) Corporations. For
					 purposes of the tax imposed under Chapter 3 of the Revenue and Taxation Code
					 (commencing with Revenue and Taxation Code section
					 23501),
					 the term corporation includes--
(1) A business
					 entity organized under a federal or state statute, or under a statute of a
					 federally recognized Indian tribe, if the statute describes or refers to the
					 entity as incorporated or as a corporation, body corporate, or body
					 politic;
(2) An association (as
					 determined under Reg. §
												23038(b) -
					 3);
(3) A business entity organized under a state
					 statute, if the statute describes or refers to the entity as a joint-stock
					 company or joint-stock association;
(4) [reserved];
(5) [reserved];
(6) [reserved];
(7) A business entity that is taxable as a
					 corporation under a provision of the Revenue and Taxation Code other than
					 subdivision (b) of Section
					 23038; and
(8) Certain foreign entities --
(A) In general. Except as provided in
					 subsections (b)(8)(B) and (d) of this regulation, the following business
					 entities formed in the following jurisdictions:
American Samoa, Corporation
Argentina, Sociedad Anonima
Australia, Public Limited Company
Austria, Aktiengesellschaft
Barbados, Limited Company
Belgium, Societe Anonyme
Belize, Public Limited Company
Bolivia, Sociedad Anonima
Brazil, Sociedade Anonima
Bulgaria, Aktsionerno Druzhestvo
Canada, Corporation and Company
Chile, Sociedad Anonima
People's Republic of China, Gufen Youxian Gongsi
Republic of China (Taiwan), Ku-fen Yu-hsien
						Kung-szu
Columbia, Sociedad Anonima
Costa Rica, Sociedad Anonima
Cyprus, Public Limited Company
Czech Republic, Akciova Spolecnost
Denmark, Aktieselskab
Ecuador, Sociedad Anonima or Compania Anonima
Egypt, Sharikat Al-Mossahamah
El Salvador, Sociedad Anonima
Estonia, Aktsiaselts
European Economic Area/European Union, Societas
						Europaea
Finland, Julkinen Osakeyhtio/Publikt Aktiebolag
France, Societe Anonyme
Germany, Aktiengesellschaft
Greece, Anonymos Etairia
Guam, Corporation
Guatemala, Sociedad Anonima
Guyana, Public Limited Company
Honduras, Sociedad Anonima
Hong Kong, Public Limited Company
Hungary, Reszvenytarsasag
Iceland, Hlutafelag
India, Public Limited Company
Indonesia, Perseroan Terbuka
Ireland, Public Limited Company
Israel, Public Limited Company
Italy, Societa per Azioni
Jamaica, Public Limited Company
Japan, Kabushiki Kaisha
Kazakstan, Ashyk Aktsionerlik Kogham
Republic of Korea, Chusik Hoesa
Latvia, Akciju Sabiedriba
Liberia, Corporation
Liechtenstein, Aktiengesellschaft
Lithuania, Akcine Bendroves
Luxembourg, Societe Anonyme
Malaysia, Berhad
Malta, Public Limited Company
Mexico, Sociedad Anonima
Morocco, Societe Anonyme
Netherlands, Naamloze Vennootschap
New Zealand, Limited Company
Nicaragua, Compania Anonima
Nigeria, Public Limited Company
Northern Mariana Islands, Corporation
Norway, Allment Aksjeselskap
Pakistan, Public Limited Company
Panama, Sociedad Anonima
Paraguay, Sociedad Anonima
Peru, Sociedad Anonima
Philippines, Stock Corporation
Poland, Spolka Akcyjna
Portugal, Sociedade Anonima
Puerto Rico, Corporation
Romania, Societe pe Actiuni
Russia, Otkrytoye Aktsionernoy Obshchestvo
Saudi Arabia, Sharikat Al-Mossahamah
Singapore, Public Limited Company
Slovak Republic, Akciova Spolocnost
Slovenia, Delniska Druzba
South Africa, Public Limited Company
Spain, Sociedad Anonima
Surinam, Naamloze Vennootschap
Sweden, Publika Aktiebolag
Switzerland, Aktiengesellschaft
Thailand, Borisat Chamkad (Mahachon)
Trinidad and Tobago, Limited Company
Tunisia, Societe Anonyme
Turkey, Anonim Sirket
Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu
United Kingdom, Public Limited Company
United States Virgin Islands, Corporation
Uruguay, Sociedad Anonima
Venezuela, Sociedad Anonima or Compania
						Anonima
(B) Clarification of
					 list of corporations in subsection (b)(8)(A) of this regulation -- 1.
					 Exceptions in certain cases. The following entities will not be treated as
					 corporations under subsection (b)(8)(A) of this regulation:
a. With regard to Canada, a Nova Scotia
					 Unlimited Liability Company (or any other company or corporation all of whose
					 owners have unlimited liability pursuant to federal or provincial
					 law).
b. With regard to India, a
					 company deemed to be a public limited company solely by operation of Section
					 43 A(1) of the Internal Revenue
					 Code (relating to corporate ownership of the company), Section
					 43 A(1A) of the Internal Revenue
					 Code (relating to annual average turnover), or Section
					 43 A(1B) of the Internal Revenue
					 Code (relating to ownership interests in other companies) of the Companies Act,
					 1956 (or any combination of these), provided that the organizational documents
					 of such deemed public limited company continue to meet the requirements of
					 Section 3(1)(iii) of the
					 Companies Act, 1956.
c. With regard
					 to Malaysia, a Sendirian Berhad.
2. Inclusions
					 in certain cases. With regard to Mexico, the term Sociedad Anonima includes a
					 Sociedad Anonima that chooses to apply the variable capital provision of
					 Mexican corporate law (Sociedad Anonima de Capital
					 Variable).
(C)
					 Public companies. For purposes of subsection (b)(8)(A) of this regulation, with
					 regard to Cyprus, Hong Kong, and Jamaica, the term Public Limited Company
					 includes any Limited Company that is not defined as a private company under the
					 corporate laws of those jurisdictions. In all other cases, where the term
					 Public Limited Company is not defined, that term shall include any Limited
					 Company defined as a public company under the corporate laws of the relevant
					 jurisdiction.
(D) Limited
					 companies. For purposes of this subsection (b)(8), any reference to a Limited
					 Company includes, as the case may be, companies limited by shares and companies
					 limited by guarantee.
(E)
					 Multilingual countries. Different linguistic renderings of the name of an
					 entity listed in subsection (b)(8)(A) of this regulation shall be disregarded.
					 For example, an entity formed under the laws of Switzerland as a Societe
					 Anonyme will be a corporation and treated in the same manner as an
					 Aktiengesellschaft.
(9)
					 Business entities with multiple charters.
(A)
					 An entity created or organized under the laws of more than one jurisdiction if
					 the rules of this regulation would treat it as a corporation with reference to
					 any one of the jurisdictions in which it is created or organized. Such an
					 entity may elect its classification under Treas. Regs. §
													301.7701-3, subject to the
					 limitations of those provisions, only if it is created or organized in each
					 jurisdiction in a manner that meets the definition of an eligible entity in
					 Reg. §
													23038(b) -
					 3(a). The
					 determination of a business entity's corporate or non-corporate classification
					 is made independently from the determination of whether the entity is domestic
					 or foreign. See Reg. §
													23038(b) -
					 5 for the rules that determine
					 whether a business entity is domestic or foreign.
(B) Examples. The following examples
					 illustrate the rule of this subsection (b)(9):
Example 1.
(i)
					 Facts. X is an entity with a single owner organized under the laws of Country A
					 as an entity that is listed in subsection (b)(8)(A) of this regulation. Under
					 the rules of this regulation, such an entity is a corporation for California
					 income and franchise tax purposes and under Reg. §
														23038(b) -
					 3(a) is unable to
					 elect its classification. Several years after its formation, X files a
					 certificate of domestication in State B as a limited liability company (LLC).
					 Under the laws of State B, X is considered to be created or organized in State
					 B as an LLC upon the filing of the certificate of domestication and is
					 therefore subject to the laws of State B. Under the rules of this regulation
					 and Reg. §
														23038(b) -
					 3, an LLC with a single owner
					 organized only in State B is disregarded as an entity separate from its owner
					 for California income and franchise tax purposes (absent an election to be
					 treated as an association). Neither Country A nor State B law requires X to
					 terminate its charter in Country A as a result of the domestication, and in
					 fact X does not terminate its Country A charter. Consequently, X is now
					 organized in more than one jurisdiction.
(ii) Result. X remains organized under the
					 laws of Country A as an entity that is listed in subsection (b)(8)(A) of this
					 regulation, and as such, it is an entity that is treated as a corporation under
					 the rules of this regulation. Therefore, X is a corporation for California
					 income and franchise tax purposes because the rules of this regulation would
					 treat X as a corporation with reference to one of the jurisdictions in which it
					 is created or organized. Because X is organized in Country A in a manner that
					 does not meet the definition of an eligible entity in Reg. §
														23038(b) -
					 3(a), it is
					 unable to elect its classification.
Example 2.
(i)
					 Facts. Y is an entity that is incorporated under the laws of State A and has
					 two shareholders. Under the rules of this regulation, an entity incorporated
					 under the laws of State A is a corporation for California income and franchise
					 tax purposes and under Reg. §
														23038(b) -
					 3(a) is unable to
					 elect its classification. Several years after its formation, Y files a
					 certificate of continuance in Country B as an unlimited company. Under the laws
					 of Country B, upon filing a certificate of continuance, Y is treated as
					 organized in Country B. Under the rules of this regulation and Reg. §
														23038(b) -
					 3, an unlimited company organized
					 only in Country B that has more than one owner is treated as a partnership for
					 California income and franchise tax purposes (absent an election to be treated
					 as an association). Neither State A nor Country B law requires Y to terminate
					 its charter in State A as a result of the continuance, and in fact Y does not
					 terminate its State A charter. Consequently, Y is now organized in more than
					 one jurisdiction.
(ii) Result. Y
					 remains organized in State A as a corporation, an entity that is treated as a
					 corporation under the rules of this regulation. Therefore, Y is a corporation
					 for California income and franchise tax purposes because the rules of this
					 regulation would treat Y as a corporation with reference to one of the
					 jurisdictions in which it is created or organized. Because Y is organized in
					 State A in a manner that does not meet the definition of an eligible entity in
					 Reg. §
														23038(b) -
					 3(a), it is
					 unable to elect its classification.
Example 3.
(i)
					 Facts. Z is an entity that has more than one owner and that is recognized under
					 the laws of Country A as an unlimited company organized in Country A. Z is
					 organized in Country A in a manner that meets the definition of an eligible
					 entity in Reg. §
														23038(b) -
					 3(a). Under the
					 rules of this regulation and Reg. §
														23038(b) -
					 3, an unlimited company organized
					 only in Country A with more than one owner is treated as a partnership for
					 California income and franchise tax purposes (absent an election to be treated
					 as an association). At the time Z was formed, it was also organized as a
					 private limited company under the laws of Country B. Z is organized in Country
					 B in a manner that meets the definition of an eligible entity in Reg. §
														23038(b) -
					 3(a). Under the
					 rules of this regulation and Reg. §
														23038(b) -
					 3, a private limited company
					 organized only in Country B is treated as a corporation for California income
					 and franchise tax purposes (absent an election to be treated as a partnership).
					 Thus, Z is organized in more than one jurisdiction. Z has not made any entity
					 classification elections under Reg. §
														23038(b) -
					 3.
(ii) Result. Z is organized in Country B as a
					 private limited company, an entity that is treated (absent an election to the
					 contrary) as a corporation under the rules of this regulation. However, because
					 Z is organized in each jurisdiction in a manner that meets the definition of an
					 eligible entity in Reg. §
														23038(b) -
					 3(a), it may
					 elect its classification under Reg. §
														23038(b) -
					 3, subject to the limitations of
					 those provisions.
Example 4.
(i)
					 Facts. P is an entity with more than one owner organized in Country A as a
					 general partnership. Under the rules of this regulation and Reg. §
														23038(b) -
					 3, an eligible entity with more
					 than one owner in Country A is treated as a partnership for California income
					 and franchise tax purposes (absent an election to be treated as an
					 association). P files a certificate of continuance in Country B as an unlimited
					 company. Under the rules of this regulation and Reg. §
														23038(b) -
					 3, an unlimited company in Country
					 B with more than one owner is treated as a partnership for California income
					 and franchise tax purposes (absent an election to be treated as an
					 association). P is not required under either the laws of Country A or Country B
					 to terminate the general partnership in Country A, and in fact P does not
					 terminate its Country A partnership. P is now organized in more than one
					 jurisdiction. P has not made any entity classification elections under Reg.
					 §
														23038(b) -
					 3.
(ii) Result. P's organization in both Country
					 A and Country B would result in P being classified as a partnership. Therefore,
					 since the rules of this regulation would not treat P as a corporation with
					 reference to any jurisdiction in which it is created or organized, it is not a
					 corporation for California income and franchise tax
					 purposes.