When To Foreign Qualify A Business

When To Foreign Qualify A Business

Once business owners have established themselves in the state in which they initially filed as an LLC or corporation, they may find it time to begin expanding business operations across state lines. However, this tends to become very confusing for business owners, as they are unsure how to go about filing as an LLC or corporation in the state in which they plan to begin conducting business. Owners should take time to learn when to foreign qualify a business.

Filing As A Foreign Entity

The process for registering as an LLC or corporation in another state is similar to the process that business owners went through during their filings in their domestic state. Business owners must file paperwork with the foreign state’s Secretary of State, as well as pay filing fees. The main difference, of course, is that business owners will now be declaring that they are a foreign entity, as opposed to a domestic entity.

Whenever a company conducts business in another state, they must foreign qualify. Companies only incorporate domestically once. Registrations in subsequent states can be as foreign entities. So, for example, if a company initially files in Wyoming but is looking to expand to other states, it is considered domestic only in Wyoming. It is deemed to be foreign in all other states.

Foreign Still Relates To The United States

Many business owners are confused when they hear the word “foreign” in this case, thinking that it refers to a company that exists outside of the United States. When it comes to corporations and LLCs, foreign applies strictly to the 50 states and the District of Columbia. When foreign qualifying, companies are merely acknowledging that they seek to do business in another state.

Certificates Of Good Standing

Certificates of Good Standing demonstrate that a business is held in good standing in their domestic Secretary of State’s office. To be in good standing, companies must be up to date on all of their annual report filings, fees, and taxes. When foreign qualifying, states will often require companies to provide their certificates of good standing from their domestic state.

This is done to prevent a business from defaulting in their domestic state and running to a foreign state to continue conducting business. Furthermore, Certificates of Good Standing are kept current. Depending on the domestic state, Certificates of Good Standing can last anywhere from 30 days to one year. A company will not be able to provide an old Certificate of Good Standing when attempting to foreign qualify in another state. So, to foreign qualify in another state, businesses must keep their information and filings to-date with their domestic state.

Business Entities Must Meet All State Regulations

If a company foreign qualifies in another state, they are still liable to meet all state reporting requirements. Not only must they meet state reporting requirements in their domestic state, but they also must meet state reporting requirements in their foreign state. Just like in the domestic state, failure to meet these requirements could result in serve penalties or administrative dissolvement.

This could be particularly difficult to track as companies expand into more and more states. Imagine a business who initially filed as a domestic corporation or LLC in Indiana. Indiana has a biennial reporting requirement, meaning that companies must submit their regular filings every two years. Suppose that company has operated as a domestic corporation or LLC in Indiana for a decade. All of a sudden, the expand into Illinois, which has an annual reporting requirement. The business owners, who were used to submitting regular filings every two years, must now submit annual filings every year.

Additionally, businesses are also required to keep current with fees for all states in which they operate. This could become costly depending on the filing fees for the respective states. Businesses should perhaps create a table that lists the annual filing fees they must submit each year, for both their domestic state and the states in which they foreign qualify. This can help corporations and LLCs set a budget and keep track of their filing fees.

Registered Agents

In addition to annual reports and filing fees, the registered agent requirements remain the same when a company foreign qualifies in another state. Although the registered agent requirements may vary from state to state, all of the states agree with the fact that the registered agent must have a physical address in the state in which business is being conducted.

Imagine again the Indiana business owner. For ten years, the business owner used his or her spouse as their registered agent. The spouse was happy to serve in this role, and the business owner could trust that the spouse would be home during regular business hours and that the spouse would pass along all information and legal correspondence relevant to the business.

Now, after expanding into Illinois, the business owner does not have a registered agent who they can trust. Although they have coworkers in the state of Illinois, they do not have anyone with who they would deem reliable enough to serve as the company’s registered agent. What is the business owner to do now? The owner must still meet the requirements set forth by the Illinois Secretary of State’s office, which state that the registered agent must be a resident of the state or a company authorized to conduct business in the state. Keep in mind that the business owner must provide the registered agent information when filing the foreign qualify paperwork.

Businesses would be wise to consider third-party registered agent companies like us at DoMyLLC. We are authorized to conduct business in all 50 states, plus the District of Columbia. They also have physical locations in every state, meaning they meet both domestic and foreign registered agent requirement across the country. If the Indiana business owner had used DoMyLLC for the past decade, he or she would have already established a trustworthy relationship. The process of listing us as the registered agent in Illinois would be seamless and would be one less thing for the owner to worrying about when foreign qualifying.

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