Foreign Qualification for Businesses
Just because your company is incorporated in one state doesn’t mean you can’t do business in another. However, in order to do so legally you will have to qualify as a foreign corporation. For example, if you incorporated in your home state, New York, but want to do business in an adjoining state like New Jersey, then you would first have to qualify as a foreign corporation there.
Note: Some states use different terms for this process, such as “registering.”
Steps to Qualifying as a Foreign Corporation
Each state has its own process in place for qualifying as a foreign corporation, so you need to check with the Secretary of State for the state in question for specific details. This is an outline of the most common, general steps and requirements that you are likely to encounter.
Foreign Corporation Certificate. This form, also referred to in some places as the Statement and Designation by Foreign Corporation, gathers details about the foreign corporation. A corporate officer must sign and date this form, and you will also have to pay a filing fee at this stage. Items on this form include:
- Name of the corporation
- State of incorporation
- Principal office address in the state of incorporation
- Principal office address in the foreign state you are applying to qualify
- Name and address of a registered agent in the state
A registered agent is needed so that the state has a way to communicate with your business, and can be either an individual or a corporation. The registered agent is required to reside in the state and give a physical address, not a PO Box. States may have different rules about the registered agent, so be sure to check if the state where you are qualifying as a foreign corporation has additional requirements.
Certificate of Good Standing. This certificate, which in some states is also known as the Certificate of Authorization or the Certificate of Existence, is another common requirement. This form provides proof, as issued from a state official from the state of incorporation, that the corporation is authorized to do business in the state where you are qualifying.
When you qualify as a foreign corporation in a state, that gives the state a way to tax your corporation for what you do in that state. You should consult with your attorney, accountant, or other trusted expert to work out the tax implications of qualifying as a foreign corporation, since these new taxes might be a double tax after what you’re already paying in your state of incorporation.
Also, keep in mind that every state defines “business transactions” a little bit differently, so types of transactions that require you to qualify in one state might not necessitate qualifying in another state where you do the exact same thing. An example is an online business that has customers in another state and ships products there; is that a business transaction that requires qualifying as a foreign corporation or not? In general, be aware that states are testing the definitions of what counts as a business transaction, so the rules are different from state to state and will change within a state over time. If you are unsure whether your corporation is required to qualify as a foreign corporation in a particular state, consult with your attorney, because failure to register carries heavy penalties.
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