Are you thinking of expanding your company’s physical presence or planning to secure the beneficial business tax and legal environment for your company? You can consider doing business in a different state. Initially, you may get confused, and a lot of questions may come to mind such as how to apply, what are the requirements, but a professional can help lead you on the right path.
So, if you’ve been considering to expand your corporation or LLC into a state away from the one in which your company is incorporated in now, you may likely need to register your business in that state, the process is known as a “foreign qualification.”
What is a Foreign Qualification?
When you register your company to do business in a state other than your state of formation, it needs a Foreign Qualification. LLCs and Corporations are considered as domestic only in their state of formation. For example, if you formed your LLC in Nevada, it is only domestic in the state of Nevada. If your LLC is transacting business outside the state of Nevada, it would be regarded as a Foreign LLC in those other states.
Without obtaining a foreign qualification, an LLC or Corporation is not permitted to do business in another state legally, and if it does, it will not be granted the protection of that state’s court system. A Corporation that trades and maintains an office in another state is considered as an out-of-state or Foreign entity and is required to obtain a Foreign Qualification status to conduct its business out of state officially. Without this status, the company cannot get an order to do business in that state.
It is the responsibility of the Secretary of State to grant a Foreign Qualification in each state. The regulations for Foreign Qualification may also apply to Limited Partnerships, Business Trusts, and Limited Liability Companies. Foreign qualification rules vary by each state.
Why is Foreign Qualification Important?
It is not an option to get your company qualified for a Foreign Qualification as it is a legal requirement. If you fail to qualify a Foreign Corporation or LLC, it could result in:
- Liability for back taxes for the time you were transacting your business in another state but were not qualified.
- Penalties and fines for the time you were transacting your business in another state but were not qualified.
- If you were sued in that state, you would not be able to protect the suit which means loss of access to that state’s court system.
What is the Foreign Qualification Process?
To begin with the Foreign Qualification process, you need to conduct a name availability search to ensure that the name of your company is not already used in that state by any other Domestic or Foreign Corporation or LLC, or that your business name is not deceptively similar to another name already in use. If the name you desire is not available, your company will be compelled to use a different name in that state.
The next step would be hiring a Registered Agent who will represent your business in that state. The Registered Agent will serve as an in-state connection for your out-of-state business. You should always choose to hire a Professional Registered Agent.
After that, you need to register for the Certificate of Authority in that state. The process will be similar to filing the Articles of Organization or Articles of Incorporation. Prepare and file the documents appropriately along with the appropriate fees.
Each state has distinctive requirements for the information to be incorporated into this document.
The general information includes:
- The company name
- The state of incorporation/organization
- The date of incorporation/organization
- Legal address of the business
- The number of authorized shares and a listing of the various classifications of stock (for corporations).
- Name and address of the Registered Agent in the state of qualification.
- Name and addresses of members (for LLCs) or officers (for Corporations).
- Signature of a corporate officer, often the president (for Corporations), or of a member (for LLCs).
- Type of management (for LLCs).
Certain states may require additional information, such as:
- Duration of the Corporation or LLC
- Names and addresses of directors (for Corporations).
- Financial information, which includes information on assets.
- The number of issued shares of stock (for Corporations).
- Appropriate business-purpose clauses describing the type(s) of business the company will offer.
Before handing you the Certificate of Authority, many states want to confirm whether you are in good standing in your state of formation or not. So, you are required to submit a Certificate of Good Standing, which states that your company has met all the mandatory requirements for LLCs or Corporations imposed by your state of formation.
You may also lead your company to bad standing in the state if you fail to file your annual statements or fail to pay or neglect your annual statement fees and franchise taxes. Being in bad standing will surely cause the expected state of qualification not to grant you the Certificate of Authority.
The final Certificate of Authority along with the Certificate of Good Standing or Certified Copy of your formation documents needs to be submitted to the relevant state agency and the required state filing fees paid.
The turn-around time for receiving the state approval for a Foreign Qualification varies by state, but you should typically wait for about six to eight weeks. Most states offer to expedite the filing for an additional charge. This reduces the turn-around time to two to four weeks.
When Do I Need to File for Foreign Qualification?
Confused when do you need Foreign Qualification, here are a list of questions that you need to ask to determine whether you need a Foreign Qualification or not:
- Do I have a physical presence (e.g., office space or retail store) in the state?
- Have I applied for a business license in the state?
- Do I often conduct face-to-face meetings with clients in the state frequently?
- Does a large amount of my company’s revenue come from the state?
- Are any of my employees working in the state?
- Am I paying state payroll taxes there?
If the answer to any of these questions is “yes”, your business may need to file a Foreign Qualification.
When Don’t I Need to File for a Foreign Qualification?
If you are just providing services or products to customers in a state other than the state where your business is registered, you don’t need Foreign Qualification.
For instance, if you do a majority of your work online for clients in multiple states, you don’t need to file a Foreign Qualification.
Since sometimes it can be confusing, it is advisable to get insight from your attorney before assuming you do or do not need to obtain a Foreign Qualification.
Who can file a Foreign Qualification?
There is no restriction on who can submit a Foreign Qualification filing. Anyone who can prepare and file the Certificate of Authority along with it completes all the additional requirements (i.e. providing the Certificate of Good Standing) with the relevant state agency is eligible to foreign qualify a business in that state.
What will happen if your company name is not available in the state where you would like to foreign qualify?
If your company name is not available in the state of qualification, IncParadise will inform you and ask you to choose another name. You can also file for doing business as (DBA) name for your company in the state of Foreign Qualification to do business using a name other than the name on your Certificate of Authority.
What are the outcomes of not foreign qualifying?
If It is discovered that your company has been transacting business in a state where it needs to be Foreign Qualified, but has not qualified, it will be subject to fines and penalties. The company will also be liable for the back taxes for the period in which it has transacted business in the state without being Foreign Qualified.
The other consequence of not foreign qualifying your business is that typically you could lose access to that state’s court system until you file a Foreign Qualification. If such a situation arises, your company would typically be given time to undertake the qualification process to allow you to defend such in a lawsuit.
How can IncParadise Help You?
If your company is transacting business outside your state of formation, it is required to qualify as a “Foreign Corporation” or “Foreign LLC.”
At IncParadise, we can file the required paperwork for your business to qualify as a Foreign Corporation or LLC in any of the 50 states.
We help you to register for a Certificate of Authority that will help in transacting business in that state. Also, we assist you in filing taxes and annual report fees in both the state of formation and any state where your business is qualified as a Foreign Corporation or LLC.
Additionally, if you need a Registered Agent within each state where your company is qualified, we can help you with that also. We are available to receive important communications from the state and others on behalf of the company.
Our Regular Foreign Qualification Service Includes:
- Initially, we will do a preliminary name check in the state of Foreign Qualification
- Then we will start with the preparation and filing of the Certificate of Authority in the state of qualification
- After that, we will obtain a Certificate of Good Standing or Certified Copy for your business from the state of formation along with your Certificate of Authority.
- Then you will need to pay the initial state filing fees. The typical completion time for the Foreign Qualification process is 6 to 8 weeks.
- The fees for our Foreign Qualification Service depends on your state of Incorporation and the state where you want to register.
- You can print order form and fax it back to us for Foreign Qualification in any state.
- We accept payments by credit card. You can also mail a check or send a wire transfer.
- For expedite service, the fee is $200 extra. It includes higher fees for state filing fees and also covers overnight fees. The expedite fee covers overnight shipment back from the state and final shipment to you. Usually, the expedited Foreign Qualification process takes 4 to 6 weeks to get completed.
- The fees for super expedite service is $300 extra. It includes all of the above plus expedite obtaining Certificate of Good Standing with expedite fees. Typically, the processing time is 1-4 weeks.
For more information about our Foreign Qualification process, visit Foreign Qualification page.
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Nevada Foreign Qualification