If you are planning to expand the physical presence of your company into another state or jurisdiction or into multiple states then foreign qualification is an important process that your business needs to apply for. There are many reasons for doing business in a new state like wanting a favorable tax climate or a business friendly legal environment. Hence, it is important to understand what the process involves when you actually need it.
What is a foreign qualification?
In the simplest of words, a foreign qualification is a process that helps business entities apply for a permission to conduct business in any state that is not their home state or where the business was incorporated. It is important to understand that the foreign qualification process may vary from one state to another and is also different for different forms of business entities. For example, the process for business registration of a foreign LLC is different from that of a foreign corporation.
When does my business need to file for foreign qualification?
When companies or small businesses plan expansion of their operations across the state lines they will be subject to the registration requirements of the new state, which is also known as “foreign qualification”. This is an important aspect to consider especially for business owners, members, advisors, and managers as non-compliance of this requirement may lead to penalties in the new state. The question is when does a business need to file for the foreign qualification process?
In order to understand when your business needs to file for foreign registration, let’s look at the following questions:
- Does your business corporation or LLC have any form of physical presence in another state apart from the state of formation? Physical presence can be in the form of an office, a warehouse, or even a retail store.
- Are you conducting frequent meetings with clients from another state?
- Does your business earn a significant amount of revenue from any other state apart from the incorporation state?
- Do you have employees who work in another state?
- Are you currently paying state payroll taxes?
- Have you applied for a business license in another state?
If the answer to any or all of the above questions is ‘yes’, then you will need to apply for foreign qualification.
Let’s look at an example to understand this well. A retail thrift store business like ‘AdraiNs’ was formed in Delaware and due to their growth and success; they have opened another branch in Nevada. They are planning to expand in Nevada by adding a few more branches and will also be employing staff from the state. This also means that they will be generating revenue in both Delaware and Nevada. In such a scenario, ‘AdraiNs’ will be considered a domestic business in Delaware but a foreign business under the Nevada state laws and will be required to undergo the foreign qualification process in Nevada.
Do you want to register a foreign business?