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Every LLC and corporation has a home state—the state where it was formed. Even if you do business in only your home state, your compliance responsibilities can be hard to keep up with. But, contacts and transactions in another state can trigger the need for foreign qualification in that state, resulting in even more compliance responsibilities.
When a corporation or LLC does business outside its home state, it may be seen as a foreign entity that is required to “qualify” with the new state. This includes obtaining a Certificate of Authority and appointing a Registered Agent.
The rule is simple and uniform: If you are doing business in a state, you must follow the business registration rules. What is not simple is the definition of doing business for several reasons:
So, in this murky realm of case law, are there any warning signs that you may have a significant connection to a state and a need to register (or foreign qualify)?
Yes, there are some indications that you've crossed the compliance border in another state.
Consider these five signs:
Did you answer "yes" to any of these questions? It doesn’t necessarily mean your corporation or LLC is doing business but you may want to consult with an advisor regarding the need for foreign qualification.
A corporation or LLC is subject to fines and penalties for failure to foreign qualify when required to do so. In addition, you could be putting your limited liability at risk. What’s more, your company will be barred from bringing a lawsuit, such as a breach of contract lawsuit or a suit for defective workmanship, until it is properly authorized to do business in the state.
Although the process of registering your business in every state where it is doing business may seem onerous, failure to do so can result in some very unpleasant consequences. If you are planning on doing business outside the state where your corporation or LLC was formed, you should consult with your lawyer to make sure that you remain in compliance.
For information on the foreign qualification process, read Expanding Your Business? Foreign Qualification Protects Your Rights in a New State.
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