Registration of Foreign (Out-of-State) Business Entity
Companies wishing to conduct business outside of its state of formation must register to do so in a process called “foreign qualification.” To foreign qualify a company, the company must register for a certificate of authority in the state or states the company will be transacting business in. The company must also pay the necessary state fees. Foreign qualification comes with ongoing reporting requirements, as well as fees and taxes in the state of formation and states of qualification.
Courts use many different factors to determine if a company’s actions rise to the level of “transacting business” within a state. Common criteria courts look to include whether the company has a physical presence in the state, whether the company employs people within the state, and whether the company accepts orders in the state.
Consequences for Failing to Foreign Qualify
It is true that the fees and reporting requirements can be an extra burden, but the consequences for failing to qualify can be much more severe. Failing to qualify can bar a company from bringing a lawsuit in that state’s court. Failing to qualify can also subject a company to fines, penalties, and back taxes for business conducted in a foreign state.
The Foreign Qualification Process
During the foreign qualification process, a name availability search must be conducted to make sure that the name of the applying company is not already in use. If the name of the company is already used, the company will have to use an assumed name. After that, a company must declare a registered agent to represent the company in that state. Registered agents serve as in-state liaisons for foreign businesses. From there, the applying company must register for a certificate of authority in the state. These documents require preparation, filing, and fees to be paid. Typical information required in these forms include the company name, date and state of incorporation, principal or legal address of the business, name and address of the registered agent for the state of qualification, name and addresses of officers or members, number of authorized shares along with a listing of the classification of stock, type of management, and the signature of a corporate officer.
The state a foreign company is applying for qualification in will often check to make sure the company is in good standing the state of the company’s formation. This requires the company to obtain certificates of good standing which verifies that the company meets all the necessary requirements for corporations or LLCs in the state of the company’s formation.