Doing business in multiple states with foreign qualifications
If your company plans to transact business in a state or states other than your state of incorporation, you may need to register your business in those states as a foreign LLC or corporation. This process is called foreign qualification.
There are many factors used to determine whether a company is transacting business in a state, and the criteria differ by state. Some criteria evaluated for foreign qualifications include:
- Whether the company has a physical presence in the state
- Whether the company has employees in the state
- Whether the company accepts orders in the state
- Whether the company has a bank account in the state
If you are uncertain whether your particular business needs foreign qualification, or needs to register to transact business in another state, it’s best to seek the advice of an attorney or accountant.
Why foreign qualification is important
Foreign qualifying your company in states where you transact business is not optional. It is a legal requirement. Failure to qualify a foreign LLC or corporation when you’ve been transacting business could result in:
- Fines and penalties for the time you were transacting business but were not qualified.
- Liability for back taxes for the time you were transacting business but were not qualified.
- Loss of access to that state’s court system, meaning that if you were sued in that state, you would not be able to defend the suit.
How do you foreign qualify?
Companies are considered “domestic” only in their state of incorporation; elsewhere they are a “foreign” entity. Foreign qualification is the process of filing the appropriate paperwork to register a foreign LLC or corporation to conduct business in another state. To foreign qualify your business, you may need to:
- Register for a Certificate of Authority in the state(s) where you want to do business.
- Apply for a Certificate of Good Standing from your state of incorporation, showing that your company is in existence and has met all state requirements.
- Pay applicable state filing fees when you submit the Certificate of Authority filing.
- File annual reports, pay taxes and annual report fees in the state(s) where your company has undergone foreign qualification.
With BizFilings' Foreign Qualification Service, we undertake all of these steps for you.