If a company conducts some of its business in another state, it may be free and legal. However, if the amount of business done crosses a certain threshold, things change. The state, or states, may decide a business is running within the state, requiring authorization in the form of “foreign qualification.” Here is when a business needs to apply for this authorization.
Sometimes Business Happens Elsewhere
It’s normal for companies to do business outside the state they are based in. There’s nothing wrong with closing deals with customers or clients in other states, and it’s completely normal to do so. For example, a person who sells gourmet tea in California is fine to sell that tea to customers in other parts of the country. Architects often sell their services to clients in other cities, states, or countries.
However, there is a difference between conducting business with customers and clients in a state and having a business inside of that state. This is when foreign qualification, also sometimes called a “certificate of authority,” is required. Businesses don’t need to file for foreign qualification if owners or employees are just traveling to the state and negotiating the occasional deal.
The business will need to apply for foreign qualification if you conduct any of the following activities:
• Opening a physical business location within the state
• Hiring employees within the state
• Regularly and physically meeting with clients or customers to conduct business in the state
• Frequently entering into binding contracts for business within the state
• Generating significant amounts of total business revenue from within the state
If a company fulfills one or more of these points, they will generally need a certificate of authority or some other foreign qualification for that state.
Of course, individual states have different thresholds. What is considered a high amount of business in Alabama may not be regarded as high enough to merit foreign qualification in New York. This is why it’s always important to research the foreign qualification requirements for a specific state; there is no universal regulation to follow.
You Can Get Help
Every state will have its own requirements for applying for foreign qualification and granting a certificate of authority. Missing any of these steps will result in a rejection and can set back timelines or your potential to generate revenue.
Fortunately, some companies specialize in knowing state requirements for various business needs, including getting a Certificate Of Authority. If business owners are not sure what to do for a desired target state, they can always work with professionals who will provide guidance through each step of the process.