To be successful and generate a profit in today’s business world, many business owners are finding that it is important to conduct business outside of their local vicinity. In fact, many businesses that are located in one state are doing business in a number of other states. When a company is doing business in a state other than the one in which it is incorporated it must make a foreign qualification. Many business owners may be wondering exactly when a foreign qualification is needed.
What is a foreign qualification?
When a corporation does business in any state other than the state in which it is incorporated, the corporation must register in these other states. The process of registering to do business in a state other than the state in which a business is incorporated is called a foreign qualification. A corporation is required to register for foreign qualification in every state in which it is doing business.
When is a foreign qualification needed?
Oftentimes, the operations of a business located in one state crosses state lines into another state. When a certain amount of business operations crosses state lines, the company can be said to be doing business in another state. There are some specific criteria that a business owner can look at to determine if the company is ‘doing business’ in another state. A business may be ‘doing business’ in another state if: the company has offices, a store, or any type of physical presence in the state; the business generates a significant amount of income in another state; the company has employees in that state; or the company meets with customers and clients in another state. Simply generating income from customers in another state, however, does not necessarily dictate that a foreign qualification is needed. A business owner must examine the totality of the interaction that the business has with another state to determine whether it is necessary to make a foreign qualification.
How do you obtain foreign qualification?
To obtain foreign qualification in a state in which you are doing business but not incorporated, you must file the appropriate paperwork with the Secretary of State’s office in that state. The documents that need to be filed vary from state to state, however, they are most often referred to as either a Certificate of Authority or a Statement and Designation by a Foreign Corporation. In order to obtain a foreign qualification many state mandate that the corporation must obtain a certificate of good standing from the home state. Therefore, it is important for businesses to remain in good standing in their home states in order to be able to conduct business in another state.
It is important to note that failing to make a foreign qualification when it is required for your business can subject your business to fines, fees, and back taxes. Furthermore, businesses that do not make a foreign qualification do not have the same rights as businesses that do. Thus, most business owners desire to make a foreign qualification when they meet the minimum criteria for doing so in order to protect their interests and avoid penalties.