Articles

Five Steps When Doing Business in a New State (Foreign Qualification)

Five Steps When Doing Business in a New State (Foreign Qualification)

Every corporation, limited liability company or limited partnership that wants to do business in a state other than where it was formed will have to first qualify to do business in that so-called “foreign” state. If it does business without qualifying, the foreign state can impose penalties.

This article describes the five common steps generally taken when registering or qualifying to do business in another state.

What Is Foreign Qualification?

If a corporation, limited liability company (LLC), or limited partnership (LP) wants to do business in a state other than where it was formed (its “domestic” state), it first has to “qualify” to do business in that other state (called a “foreign” state).

The term “foreign” refers to any state or jurisdiction other than the formation state. It doesn’t mean a foreign country.

Qualification involves a number of steps. These are required by the state corporation, LLC, or LP statutes and/or regulations of the state agency in charge of business entity filings. (In many states this is the Secretary of State’s office.)

Note: It is important to remember that qualification requirements differ state-by-state. Examine the specific state in which you are looking to qualify to see exactly what that state requires.

1. Find out if the corporation/LLC/LP’s legal name is available for use in the foreign state

The legal business name is the name it was formed under (in its domestic state). A name is considered available in the foreign state, in general, if there is no other domestic or foreign company on the records of the Secretary of State (or whatever the state’s filing office is called) with that name. You can find this out, in general, by conducting an online search of the filing office’s database or submitting a request to the filing office to determine the availability of a name for you.

Some states charge a fee for a name search and some don’t. If the name is available, file an application for name reservation with the Secretary of State.

A name reservation prevents another company from forming, qualifying or reserving the name until your company has had a chance to file its qualification documents. A name can be reserved for a limited period of time. In many states the reservation period is 120 days but it can be shorter or longer depending on the state

Choosing a fictitious name

If your legal business name is not available, you will need to choose what’s called a “fictitious” name. Your company will have to qualify and do business under that fictitious name. A name reservation for that fictitious name should be filed to preserve the rights to it.

This fictitious name should not be confused with a DBA name. A DBA name is one a company voluntarily decides to do business under even if it can use its legal name. A fictitious name is not a voluntary choice. It is required because the legal name cannot be used in a state.

2. Order a Certificate of Good Standing from the domestic state

In some states a “Certificate of Good Standing” is called something else—like a “Certificate of Existence” or “Certificate of Status”. This is generally required to be submitted to the foreign state along with the qualification application. It assures the foreign state that the applicant was validly formed and still existing in its domestic state

The certificate has to be current. Some states require it to be dated before a certain period of time such as 90 days before filing the qualification application.

If the corporation/LLC/LP is not in good standing (and consequently cannot get a Certificate of Good Standing), make sure the company is returned to good standing. The most common reason for a company falling out of good standing is that it did not file its annual report with the Secretary of State or pay its franchise taxes. Actions to return it to good standing include filing any due reports, paying any due taxes, and paying any penalties

3. Decide who will be the corporation/LLC/LP’s Registered Agent in the state

Qualified corporations, LLCs, and LPs must appoint and continually maintain a Registered Agent located in the state who can receive service of process and certain other legal documents and official state communications on behalf of the corporation, LLC, or LP.

Choose wisely. If you don’t it can lead to default judgments, administrative revocation of the company’s authority to do business, and other consequences that companies want to avoid.

4. Complete the application that has to be filed in order to qualify

In many cases this is called an application for a Certificate of Authority. But the name of the document can vary depending upon the state and whether the business is a corporation, LLC, or LP.

Complete the application fully and properly because incomplete applications will usually be rejected. Find out what the filing fee is. Make sure the person signing the application is authorized to do so. For example, if the state requires a general partner to sign for an LP, a limited partner should not be the person who signs. Have the Registered Agent sign a consent to act as Registered Agent if that is required.

5. Deliver the application for authority, certificate of good standing, and fees to the filing office

First, find out how you can deliver them. For example, some states require filings to be made electronically. Others will still let you file by mailing or hand delivering paper documents.

Conclusion

Qualifying a corporation, LLC, or LP involves a number of steps including the following:

  • Finding out if its name is available and reserving that name, or reserving a fictitious name if the legal name is not available 
  • Deciding on the Registered Agent 
  • Properly completing the application for authority 
  • Ordering a certificate of good standing (and restoring the company to good standing, if necessary) 
  • Delivering the application, supporting documents, and fees to the filing office 

Remember, these are only some actions that are typically required. The state where qualification is sought may have different or additional requirements.

 

Questions? We can help.

Have a specific question about a product? A CT Specialist will follow up with a custom quote along with a comprehensive assessment of your needs.