Simply put, Foreign Qualification (also known in some states as a Certificate of Registration or Certificate of Authority) is the process of registering your corporation or LLC, in a state or jurisdiction other than where it was originally incorporated. The business entity is considered domestic to the state in which it was formed and foreign to all other states.
If your company is conducting business in any other states than the state where you incorporated, then you need to register your business in those new states in order to do business legally in states other than your home state (the state where your company was formed or incorporated).
Most frequent “foreign qualification” scenarios include if your business has any of the following in a state other than state of formation or incorporation (home state):
- has offices, employees or advertises
- conduct in-person meeting with clients
- significant portion of the company revenue from states other than the home state
- has remote employees based in states other than the home state
- Pay payroll taxes in states other than the home state
- Applied for a business license in other states
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Common questions for LLC.
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Can I do business in other states ?
Doing Business” in Another State. If your company is conducting business in any other states than the state where you incorporated (or formed an LLC), then you need to register your business in those new states. This is often called “foreign qualification.”
When do I need to file a foreign qualification ?
You may need to file and register your foreign qualification if the answer is Yes to any of these questions:
- Does your LLC or corporation have a physical presence in the state (i.e. office, restaurant, or retail store)?
- Do you often conduct in-person meetings with clients in the state?
- Does a significant portion of your company’s revenue come from the state?
- Do any of your employees work in the state? Do you pay state payroll taxes?
- Did you apply for a business license in the state?
Business Examples of Foreign Qualification
- Let’s say you operate a restaurant in North Carolina and want to expand into South Carolina. You’ll need to file a foreign qualification in South Carolina.
- You incorporated your business in Nevada, but you are physically located in California. You need to foreign qualify in California.
- You live in Massachusetts and your business partner lives in California. The company is incorporated in Massachusetts, but lately your partner has been bringing in the bulk of your company’s clients and meeting with them in California. You need to foreign qualify the business in California.
- You are a freelancer who formed an LLC for your business in Florida. You perform the majority of your work online, and have clients all over the country. In this case, you don’t need to file a foreign qualification, since you’re not frequently physically meeting in another state. Just because you are bringing in revenue from customers in other states doesn’t mean you are transacting business there according to the law.
If you have any questions about whether or not your business needs to foreign qualify, you should check with your attorney or accountant.
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