Introduction to Delaware Foreign Qualification
The state of Delaware is home to more than 1.5 million business entities with 84,675 small business formations in 2019 including foreign corporation registration in Delaware. It is one of the most preferred states by both businesses and investors due to benefits like the flexibility of structuring the ownership, administration, and operation of an entity to fit the needs of owners and investors. Delaware also presents tax advantages, small business incentives, funding and grants, privacy, and a reliable judicial system. The advantages and pro-business environment have been and will continue to attract entrepreneurs for doing business in Delaware for domestic and foreign entities.
What is foreign qualification?
Foreign qualification refers to registration of a business with the office of the secretary of state of a state different from that of its formation or home state. There are several scenarios in which a company may want to opt for Delaware foreign qualification although the most common reason is business expansion. The process of foreign corporation or foreign LLC registration in Delaware will enable a company to pursue growth opportunities in another state or across state borders legally without the need for incorporating or forming a new entity. Let’s look at an example to understand this:
If you have formed a domestic LLC in Nevada then Nevada is considered to be your home state. Now, if you plan to expand your operations to the state of Delaware then you will be required to acquire Delaware foreign qualification in order to register your LLC in the new state.
The foreign LLC or foreign corporation registration in Delaware will ensure you are able to make your business operational. You will be required to apply for and obtain business licenses or permits, hire a registered agent in Delaware, and also maintain annual compliances as required by the state of Delaware as well as Nevada.
When does a company have to foreign qualify?
If you already have a business corporation or LLC in any state in the nation except Delaware and want to expand your existing business or are interested in doing business in Delaware then you will need to register your business in the said state through a process known as foreign qualification. At the same time, it is important to understand the scenarios that will require you to apply for foreign qualification. Let us look at separate examples to understand when you need to and when you will not be required to pursue foreign LLC registration in Delaware.
- Example#1: You have a retail store in Texas and because of its tremendous success; you want to expand to other states like Delaware. In order to open a new store in Delaware, you will have to go through the process of Delaware foreign qualification as this will help you to register in this state. When you are foreign qualified, you will be able to operate your store in both locations.
- Example#2: You are a consultant based out of California and you work with multiple clients online across several states including Delaware. Since most of your work is online, you will not be required to file for foreign LLC or foreign corporation registration in Delaware. Business law specifies that earning revenue from multiple states doesn’t translate into the fact that you are actually transacting your business in those states.
Foreign qualification is not mandatory or necessary for all types of businesses or activities in Delaware. To determine if your company requires Delaware foreign qualification; you need to ask a few questions first. They are:
- Do you have a physical presence like a retail store, restaurant, or any other commercial office space in Delaware?
- Are you required to apply for a business license or permit in this state?
- Do you conduct face-to-face or in-person meetings with clients quite frequently in the said state?
- Does your business generate a substantial percentage of your company’s revenue from Delaware?
- Does your business have employees working in this state?
- Are you paying any state payroll taxes in Delaware?
If your answer is “yes” to any or all of the above questions then you will need to file for Delaware foreign qualification.
Expand your business through Delaware foreign Qualification!