Small Business Questions & Answers


Filed under Start Up

Ask About Foreign Qualification And Business Licenses

by Don't Wanna Be Bothered | March 20, 2013

Subject :

Greetings Toolkit Gurus,

My business has been growing rapidly and I am thinking about expanding into another state. I've heard that a business needs to register to do business and get business licenses in every state where it's doing business. This seems like a real hassle. What's wrong with just "flying under the radar?"

Don't Wanna Be Bothered

Dear Don't Wanna,

While it is true that the process of registering your business and obtaining business licenses in every state you are doing business in can be a hassle, failing to do so can result in some very unpleasant consequences.

What consequences? For starters, doing business in a state--but not registering with that state--can cost you your limited liability in a lawsuit and subject you to monetary penalties. If you don't obtain all the necessary licenses, the state (or local) government can shut your business down. Not only will that cost you money to reopen, you'll lose customers and your reputation.

In extreme cases, many states can issue monetary sanctions for each day of non-compliance. For example, recently the mobile payment processing company, Square, ran afoul of the state of Illinois. They were hit with a "cease and desist" order--which meant they had to expand business operations--and a $2,000 per day fine. You definitely want to avoid complications like that when you expand your operations.

So, what steps do you need to take to stay on the good side of state and local authorities? Let's walk through them.

  1. You must determine if you are "doing business" in that state. Not every contact with a state triggers the need to register with the secretary of state. However, if you have a place of business or have employees in that state, the odds are good you will have to register.
  2. If you need to register, your next step is to file the appropriate form for your entity type with the secretary of state. You will also have to appoint a registered agent who resides in or has an office in that state. And, of course, there will be a filing fee. Many businesses opt to use a service, such as BizFilings, that will prepare the appropriate paperwork and submit it to the secretary of state. Plus, these companies provide registered agent services, which guarantees you will stay in compliance with this important requirement.
  3. Once you have registered with the state, you will need to obtain the necessary business licenses. Determining which licenses are needed can be a daunting task because you have to consider state and local requirements-and these requirements will vary based upon the type of business you operate.

The Small Business Administration has an online look-up tool, Permit Me, that enables you to obtain a list of the permits that you might need based upon your zip code and type of business. While you will still need to follow up with the state and local governments, this listing can give you a starting place. In addition, many companies that handle incorporation and registered agent services also have business license services. This option frees you from learning the arcane ins-and-outs of the state and local laws, so that you can spend more time doing what you do best--growing your business.