Doing business in other states is known as qualification or registration
and it can often be confusing. Qualifying is simply registering to do business in a state other than the one in which you incorporated. When you qualify a business, you register for a Certificate of Authority in the state(s) where your company will do business and pay any required state fees. This notifies the state that your company is conducting business within its borders. Remember: your business will be subject to ongoing reporting requirements, fees and taxes in both your state of incorporation and state of qualification. If your business expands into new states and you need to qualify, these initial and ongoing fees should be considered a necessary part of doing business. Note: The state a company incorporates in is known as its domestic state. Any other states it qualifies to do business in are often referred to as foreign states, even though they are located within the US. Because of this, the qualification process can often be referred to as the foreign qualification process.
Do you need to qualify?
When considering if you need to qualify in another state, there are various factors to consider. While different states have different criteria for transacting business, consider the following:
- Does your company have a physical presence in the state?
- Does your company have a bank account in the state?
- Does your company accept orders in the state?
- Does your company have employees in the state?
If you answered yes to any of these statements, you will likely need to qualify your business in the state.
Consequences of not qualifying
- Since there are additional costs such as including initial and ongoing fees from both your state of incorporation and state of qualification—you may wonder if the process is really necessary. State laws require corporations and LLCs doing business within their borders to qualify, and the consequences of not doing so outweigh the costs:
- You may lose access to that state's court system. For example, if an employee or customer within a state in which you do business sues your company, you can't defend the lawsuit in that state, because your company is not recognized as a business there.
- You may face fines, penalties and back taxes for the time in which your company did business within a state without being qualified there.
For more information on qualifying your business, contact BizFilings