During the incorporation process, you may hear terms such as, “foreign corporation”, “foreign LLC” or, “qualification” depending upon the type of entity that is being formed. The term, “foreign”, however does not relate to another country, but rather relates to your home state. This means that if your company is formed as a corporation or limited liability company in one state, but is operating in another state, the state of operation is deemed as the “foreign state”.
This is an important feature of business compliance. To help you understand this issue, let’s tackle the concept of “Qualifying as a Foreign Entity” using the following scenario: Jane Doe formed a limited liability company called XYZ LLC in Delaware, but the business is conducted solely in Florida. In this case, XYZ is a domestic LLC in the State of Delaware and possibly a foreign LLC in the State of Florida.
Why a Foreign Entity Filing?
There are a few situations where a business owner may be required to make this type of filing, including:
- Maintaining a brick or mortar location
- Hiring Employees
- Transacting business that requires special licensing
- Deciding to file a Fictitious Name or “Doing Business As “(DBA) in another state
- Closing on Real Estate
There are also cases where filing as a Foreign Entity will likely not be required: These include:
- Telephone sales
- An online business that sells goods to people in other states
- National advertising campaigns
- Selling through independent contractors
If you fit any of the filing criteria for a foreign entity, or you have been told to register as a foreign entity, there is a process to file.
To qualify your business, you will undergo a similar process to that of the incorporation or LLC formation. In most states, the document that is filed is called a Certificate of Authority or Foreign Registration. As with any state applications, there are filing fees, which can range from $25 to $750. In most states, there are additional documents that must accompany the Certificate of Authority or Foreign Registration. The documents consist of either a Certificate of Good Standing and/or a Certified Copy of the Articles of Incorporation or Certificate of Formation from the home state. The Certificate of Good Standing will demonstrate that your business is in good standing and that there aren’t any outstanding fees.
A Registered Agent is required when you file as a foreign entity. Most Registered Agent companies provide their services in every state, so you will be able to retain the same Registered Agent service.
Once you have secured all your documents, the Certificate of Authority, Certified Copy and/or Certificate of Good Standing, and any other supporting documentation, can be submitted to the state. Normal processing times vary from one to three weeks.
As with other incorporation or LLC filing requirements, a few states have other requirements of Foreign Corporations or LLCs. Arizona, Georgia, Pennsylvania, Nebraska, and New York require that a business advertise or publicize in a local paper that your company is now providing services and conducting business in that state. Many states also require that foreign companies and LLCs file an annual report. In a few states, you will be required to file biennial reports. Of course, there will be filing fees. To aid businesses in this requirement, many states have online portals for filing annual reports.
So now that you have a better understanding about “qualification”, be sure to conduct your due diligence. Check with any state that you plan to do business in and research their laws. A good starting point for research will always be the Secretary of State’s office.