Register Your Business in a New State
Ready to take your business operations across state lines? You’ll start by registering your business as a foreign LLC or foreign corporation in each state you plan to do business. This process is called “foreign qualification”—and it’s legally required to transact business outside of the state where you formed your company.
Foreign qualification, or more simply put as just “out-of-state business registration,” is a straightforward process. You’ll find an available business name and registered agent in the new state, and then obtain verification documents from your home state to include in your foreign qualification forms to your new state.
The Foreign Qualification Guide
From determining if you need to foreign qualify to finalizing your qualification forms, we’ve prepared a detailed and easy-to-follow guide for foreign qualification below.
Why does a company have to foreign qualify?
In short, it’s for business transparency and consistency.
From the state’s perspective, foreign qualification makes sure that people can find basic information about the business they might be dealing with, like its legal name, business address, and the contact details of its registered agent. This transparency helps everyone know who they’re doing business with.
Foreign qualification also ensures that out-of-state businesses follow the same rules and pay the same taxes as local businesses. This prevents out-of-state businesses from having an unfair advantage. Plus, it makes legal processes smoother by requiring these businesses to have a registered agent and office in the state, making them easy to contact.
When does a company have to foreign qualify?
The answer lies within the state laws of your particular state.
You’ll need to foreign qualify if your company is “transacting business” outside of the state where you formed your company. To know the answer to that question, you need to know your state’s definition of transacting business.
The state definition provides lists of activities that do and do not constitute doing business. A state attorney can assist you by asking questions related to the following topics and if they apply to your business within the new state:
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- A physical presence (store, factory, etc)
- Employees
- Orders accepted or sales tax collected
- Bank accounts
Keep in mind, this isn’t a complete list. State laws and courts use different criteria to determine what constitutes transacting business. To be sure about whether your business needs to foreign qualify in a particular state, it’s best to consult an attorney.
What are the steps to foreign qualification?
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Business Name Availability
If you perform a search for the name of your company on the new state’s website and see that it’s available, you’re in the clear to keep using the name. However, if your company name is taken in the new state, you’ll need to choose a different name—usually called a “fictitious” name—to do business under in the new state. Depending on the state, you’ll either need to note this new fictitious name on your qualification documents, or fill out an extra form.
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Registered Agent
Even though you have a registered agent in your home state, you need one in every state where you do business. This can be challenging when expanding to new states, so many businesses choose to use a national registered agent service (like ours) to make it easier.
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Proof of Existing Business
Usually called a Certificate of Good Standing or Certificate of Existence, you’ll most likely need a state-certified document like this as proof to the new state that your business exists and is in good standing. A handful of states ask for a certified copy of your business formation documents (and amendments) in addition, while a smaller yet amount of states won’t ask for any proof of existence.
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Foreign Qualification Filing
The foreign qualification form, often called a Certificate of Authority or Foreign Registration Statement, asks for the basics of your company, like names, addresses, number of shares, or type of management. You’ll need the signature of an authorized person to finish—then you’re ready to submit your filing. Filing fees vary from as little as $50 in Hawaii to over $700 in states like Texas and South Dakota.
Consequences of failing to foreign qualify
Lack of foreign qualification means lack of authority for your business—including deep financial risks and no grounds to take legal action. Illegally engaging in business activity without proper registration usually results in penalties and back taxes fatal to your business. You’ll face the inability to sue in that state’s court, should that need arise.
For the majority of businesses, foreign qualification is the best option (and least burdensome) for operating in multiple states.
FAQ
Yes, you’ll need to obtain state-specific licenses or permits related to your business activities.
Yes, after you register your foreign LLC or foreign corporation in the new state, you will usually need to file the required periodic reports (usually annual reports) just like any local business entity. These reports keep the state updated about your business’s current contact information and status.
No, you don’t need a new EIN for your foreign LLC or foreign corporation when registering to do business in a new state. Your existing EIN will cover all your business activities, and you’ll use your EIN for any state-specific filings and tax purposes.
Taxes for foreign LLCs and foreign corporations in each state can get a bit complex. You’ll need to research and comply with that state’s tax laws, including state income taxes, franchise taxes, sales taxes, and other local taxes. It’s important to consult with a tax professional or accountant who specializes in multi-state operations and international business to ensure you meet all your tax obligations and take advantage of any potential tax benefits.
Forming a brand new business in each state your business operates is technically possible, but it’s also unwieldy and expensive for the vast majority of businesses. You’ll need separate books, banks accounts, and tax filings, as well as multiple EINs to add to the administrative burden. Managing one entity across multiple states simplifies accounting, tax filing, compliance processes, and helps with consistency for a unified brand image.