S tarting a new business venture is an exciting prospect. But as you grow your business, there may come a time when you want to expand your operations beyond your original state of formation. When you get to this stage, your business may need to seek foreign qualification before moving forward.
Understanding the process and requirements for foreign qualification is crucial for startups looking to expand their footprint and operate legally in multiple states. The following guide explores the concept of foreign qualification, including what constitutes doing business in another state and how to complete the foreign qualification process to register your business in other jurisdictions.
What Is Foreign Qualification?
It is important to understand what the word foreign means in the context of foreign qualification. A common misconception is that a foreign business entity refers to an international business located in a country other than the United States. However, this is not necessarily the case. When you first form your startup, you typically register it in the state where you plan to conduct your business operations primarily. This state will be your domestic state of formation. Any other state will consider your business a foreign entity.
If you decide to do business outside your original formation state, you must first obtain legal authority to conduct business in that foreign jurisdiction. In short, foreign qualification refers to registering a business entity in a jurisdiction outside of its original formation state so that it can legally conduct business there.
Foreign qualification refers to registering a business entity in a jurisdiction outside of its original formation state
Why Seek Foreign Qualification
Depending on the state, foreign qualification may be referred to by different titles. Below are some examples.
Regardless of what it is called in any given jurisdiction, seeking foreign qualification before conducting business operations outside your domestic state of formation is essential. Before conducting business in any jurisdiction, it’s important to ensure that you have met all local requirements. The foreign qualification process ensures that your business is legally compliant without having to start from scratch and register a new domestic business in every state where you plan to operate.
What Constitutes “Doing Business” in Another State?
As a general rule, you should seek foreign qualification in any state you plan to do business in that is not your domestic state of formation. However, when it comes to defining what constitutes doing business in another state for purposes of foreign qualification, the answer is not always so simple. Below are some examples of activities that may rise to the level of doing business, thereby requiring you to seek foreign qualification:
- Having a physical presence, such as a storefront, warehouse, manufacturing facility, or office location, within the state.
- Employing workers who perform their job duties within the state.
- Selling products or providing services, either in-person or through online channels, within the state.
- Regularly entering into contracts or having ongoing business relationships with individuals or other entities located in the state.
- Conducting marketing or advertising campaigns directed toward consumers within the state.
- Maintaining bank or other financial accounts for the business within the state.
Note, however, that the definition and requirements for what constitutes doing business will vary from state to state.
How to Register an Existing Business in Another State
Registering an existing business in another state through the foreign qualification process will typically involve several steps.
1. Research Local Requirements
Again, it’s important to remember that the requirements, forms, and fees for foreign qualification will vary from state to state. Thus, be sure to research the local requirements of any states where you plan to expand your business before getting started.
2. Check Availability for Your Business Name
Next, check the state’s business registration records to ensure that your business name is available for use in the foreign jurisdiction. Most states will not permit foreign qualification if your business name is the same or confusingly similar to another business name already registered with the state. If your desired business name is unavailable, you may need to select an assumed or fictitious name for purposes of foreign qualification and conducting business in that particular state.
3. Obtain the Necessary Documentation from Your Home State
When applying for a foreign qualification in any new state, you will typically need to provide documentation confirming that you validly formed your business in compliance with the laws of your home state. This documentation is commonly referred to as a Certificate of Existence or Certificate of Good Standing, and it can typically be obtained through the Secretary of State or equivalent state agency.
4. Appoint a Registered Agent
Most states will also require your business to appoint a registered agent. Notably, however, this registered agent must be located within the state. Thus, if the registered agent appointed in your domestic registration filings is physically located in your home state, you may need to identify and appoint a new agent who is present in the new foreign jurisdiction.
5. File and Pay
Once you’ve prepared your application and any supporting documentation, you are ready to submit it to the appropriate state agency, along with the requisite fee. Once your foreign qualification is approved, you can legally conduct business in your new state and continue to grow and expand your business operations.
Frequently Asked Questions
Is There a Difference Between the Process for LLC Foreign Qualification and Foreign Qualification for Other Entity Types?
Generally speaking, no. The process for registering as a foreign business entity in another jurisdiction is typically the same regardless of whether your business is an LLC or another type of entity. That said, processes may vary from state to state. Be sure to check the rules and requirements in the particular jurisdiction where you plan to complete a foreign qualification.
Do I Need to Register My Business in Multiple States?
Not all businesses need to register in multiple states. However, you should file for a foreign qualification in any state where you plan to conduct business beyond your domestic state of incorporation moving forward. Failure to do so may result in penalties such as fines for the business entity or potential personal liability exposure for individual owners and officers of the business.
Disclaimer: Bizee and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
