There Are Consequences For Not Receiving Foreign Qualification

A certificate of authority or foreign qualification is required to run a business in another state in order to operate legally across state lines. What happens if this is ignored and business is conducted across state lines anyway?

Legally Certified

If a business owner makes the occasional business deal in another state, this does not require foreign qualification. However, there is a limit to this rule and the state can take action against the business, increasing the severity of those actions, including:

Fines & Penalties

The minimum action the state will take is to impose fines, filing fees, and other financial penalties if a business is run without filing for foreign qualification or a certificate of authority. There may even be interest involved with these fines and penalties as time passes and they go unpaid.

No Litigation Ability

If a business owner runs into a legal dispute in the state, such as a contractor not following through on an agreement, the business doesn’t have any legal options without filing for foreign qualification. Only out-of-state businesses with proper foreign qualification and a certificate of authority are legally permitted to go to court for lawsuits and other civil law disputes. Business owners are on their own if they run into legal trouble without being legally allowed to operate in the state.

Back Taxes

Because businesses are not legally recognized as having foreign qualification and a certificate of authority to go with it, they won’t be able to pay taxes in that state properly. However, just because the business is not paying taxes, that doesn’t mean the state won’t try to collect what is owed.

Back taxes can be retroactively applied to a business once the state takes action against it. This will result in more fines and penalties, as well as the IRS placing interest on what may be owed. Late payment penalties may also take effect.

In the end, if a business owner wishes to legally run a business in other states, they should always find out what that state requires for foreign qualification and get a certificate of authority.