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What happens when a small business has incorporated in one state, but wants to obtain the authority to do business and conduct operations outside state lines? Generally, most small businesses must file an application to foreign qualify.
A foreign qualification, if you’re unfamiliar with the term, allows businesses to legally do business in states outside of their initial state of formation. Some states refer to a foreign qualification as a certificate of registration.
For example, if your company initially incorporated your LLC in the state of Nevada, but has (or is currently establishing) an office and employee base in the state of California, you would need to file for a foreign qualification.
Many businesses foreign qualify to expand their company and customer base. Beyond sales and business expansion, filing for a foreign qualification is also a requirement in most states, and small businesses must apply for the authority to conduct business in an outside state.
Are you ready to foreign qualify your startup? Let’s take a look at how companies may begin the filing process.
Determine if you should file a foreign qualification
This first step may sound a bit obvious, but it’s important that entrepreneurs understand whether or not a foreign qualification is right for their business.
Ask yourself the following:
- Does your company conduct business in this state?
- Are you paying employees?
- Does your business have a physical address in another state?
- Have you opened a business bank account there?
- Does your company have any assets in states outside of your formation state?
If you can answer “yes” to the previous questions, you’re ready to file to foreign qualify in another state.
Apply for a certificate of good standing
What is a certificate of good standing? Some states refer to this certificate as a certificate of existence or certificate of status. It is requested from small businesses as proof that they are running their business by legal rules and regulations. A certificate of good standing provides verification from the state that your business has met its tax and business filing obligations and is also fully incorporated as an existing LLC or corporation.
Small business that file a foreign qualification must first apply for a certificate of good standing from their state of incorporation. Once the state they wish to do business in receives this certificate, they have physical proof of your company’s compliance.
Designate a registered agent
You may already have a registered agent for your business in your state of formation. This is an individual or third party service that acts as the point of contact between your company and the state. A registered agent accepts legal paperwork on your behalf, organizes the documents and gives the paperwork to the business owner in a discrete, confidential manner.
As you file to foreign qualify in another state, your business will also need to designate another registered agent. Remember that whomever you choose as your RA must be a resident of the state. They need to have a physical street address (P.O. Box addresses may not be used) and be able to accept process of service during general business hours.
Begin registering as a foreign qualification
Once you’ve determined that your business is ready to foreign qualify and has obtained all of its necessary documents, you may file a foreign qualification. The filing process is fairly simple. Your application will request details including standard business contact information. This application may also request specific information that pertains to your home state, foreign state, entity type, and director and officer information.
Where does your application go once it has been completed? You may submit the foreign qualification filing through the local Secretary of State in the state you wish to now conduct business in. Or, you may work with a third party filing organization. They will be able to forward your foreign qualification application, and its filing fee, to the state on your behalf and keep you updated when the foreign qualification has been fully registered.