When it is determined that a corporation or LLC is transacting business in a state or states other than its state of formation, the company is required to foreign qualify in those states. The process of foreign qualifying a business notifies a state that a corporation or LLC, which was not formed in that state, is transacting business within its borders.
In order to foreign qualify a corporation or LLC, you must register for a certificate of authority in that state. The process of applying for a certificate of authority is similar to filing articles of incorporation or articles of organization. The appropriate documents must be prepared and filed, and the appropriate state fees paid.
As part of the foreign qualification process, a name availability search must be conducted in the state of qualification. This helps to ensure that the name of your company is not already in use in that state by another domestic or foreign corporation or LLC or that its name is not deceptively similar to another name already in use. If your desired name is not available, your company will be required to use an assumed name in that state.
Once the name availability search has been performed, the certificate of authority should be drafted. Each state has different requirements for the information to be included in this document. Common information includes:
- Company name
- Date and state of incorporation/organization
- Principal or legal address of the business
- Name and address of registered agent in the state of qualification
- Name and addresses of officers (for corporations) or members (for LLCs)
- Number of authorized shares and a listing of the different classifications of stock (for corporations)
- Type of management (for LLCs)
- Signature of a corporate officer, often the president (for corporations), or of a member (for LLCs)
Keep in mind that the registered agent must have a physical address (no P.O. boxes) in the state of qualification, and must be available during normal business hours. In case you don’t know exactly what the registered agent is or does, the registered agent is the party responsible for the receipt of important legal and tax documents for the company, such as Service of Process (the document that initiates a lawsuit), mail from the state, and often tax documents from the state’s department of taxation.
If you do not have a physical address in the state of qualification, you can enlist the services of a professional registered agent service provider, such as BizFilings, which serves as registered agent in all 50 states and Washington D.C. Even if you do have a physical address in that state, you, like many business owners, may still choose to use a registered agent service provider, with one of the key reasons being to ensure these important documents are handled professionally.
Additional information is often required in certain states.Examples of this include:
- Names and addresses of directors (for corporations)
- Duration of the corporation or LLC
- Number of issued shares of stock (for corporations)
- Financial information, including information on assets
- Specific business-purpose clause outlining the type(s) of business the company will undertake
Before granting approval of the certificate of authority, many states want to ensure your company is in “good standing” in the state of formation. In order to do this, they require that a certificate of good standing be submitted along with your certificate of authority. States that do not require a certificate of good standing typically require a certified copy of your articles of incorporation or articles of organization to be included when you file for a certificate of authority.
The certificate of good standing is a document that states that your company has met all the necessary requirements for corporations or LLCs imposed by your state of formation. Failing to file your annual statements or failing to pay or being delinquent in paying your annual statement fees and franchise taxes could cause your company to be in bad standing with the state. Being in bad standing will most certainly cause the intended state of qualification not to grant you a certificate of authority.
The prepared certificate of authority, the certificate of good standing or certified copy of your formation documents should be submitted to the appropriate state agency and the necessary state filing fees paid. Turn-around time for receiving state approval for a foreign qualification varies greatly by state, but you should typically allow six to eight weeks. Most states will allow you expedite the filing for an additional charge. This often reduces the turn-around time to two to four weeks.
