Find news, events, articles, videos, and more that answer your questions and keep you up-to-date.
Visit Resource Center
Stay informed on compliance updates
Businesses are required to register (foreign qualify) in a new state for a number of reasons. If the business is formed in a state (such as Delaware) where it is not operating, then it must immediately register to do business in all the states where it is operating. Business expansion also can trigger the need for foreign qualification. This occurs when a new location is opened in another state. Even if you don’t open a physical location, you may have enough significant contacts with another state that you are considered to be doing business there. See “Five Signs You Might Be Crossing the (State) Line” for tips on what is considered doing business in a state.
If you are doing business in another state, it is essential that you register your corporation or LLC in the new state. This process, which is often referred to as “foreign qualification” has a great deal of similarity to the process of forming your company in the home state. Registering to do business generally requires the following:
File Certificate of Authority. Although form name varies from state to state, such as “Application to Transact Business” or “Qualification Certificate,” most states require basic information that permits the public to know how to contact the company. The most commonly requested information includes:
Some states require more information, such as the business purpose and the authorized shares and par value of shares of a corporation. And, some states require publication of a notice of registration either before or after the certificate of authority is filed.
Provide a Certificate of Good Standing. In order to qualify to do business in a new state, you will need to show you are in good standing in your formation state. To do this you need to request a certificate of good standing which shows you’ve kept up to date with all your compliance responsibilities, such as filing your annual reports and paying any franchise taxes. Some states also require a certified copy of your articles of incorporation or formation instead of, or in addition to, a certificate of good standing.
Appoint a Registered Agent. You must have a registered agent in every state where you are authorized to do business. The registered agent must be a physical resident of the state, or a corporation qualified to act as a registered agent in the state, such as CT Corporation. Some states require a document stating that the Registered Agent accepts the appointment. (For more information about registered agents, check out our article: “Why Do I need a Registered Agent?”)
Just as with forming your company, there are costs association with registering it to do business in another state. You must pay for filing the certificate of authority in the new state, as well as obtaining a certificate of good standing from your home states. In most cases, you will need to pay fees for Registered Agent services in order to meet the in-state Registered Agent requirement.
Although the process of registering your business in every state you where you are doing business can be an expensive nuisance, failing to do so can result in some very unpleasant consequences. What are the consequences? For starters, doing business in a state—but not registering with that state—can result in monetary penalties. For example, a corporation that fails to register in Illinois faces a minimum fine of $200, with additional amounts added on each month until the registration process is completed. In Indiana, the penalty can be up to $10,000. Penalties are not the only risk you face if you fail to register to do business. You also put your limited liability at risk. This means that you could be personally liable if your company is sued and it does not have a valid certificate of authority in place. 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.
When weighed against the risks of operating in a state without being properly authorized to do so, the process of foreign qualification does not seem so onerous. And, CT can partner with you to make sure you comply with each state’s requirements as efficiently and effectively as possible.
More in Doing Business In Another State
More in Running Your Business