If you own and operate a business that frequently does business across state borders, then you need a special foreign qualification. This includes having a bank account in another state, selling products through a distributor or sales rep in another state, having company offices in another state, and owning business property in that state. Applying for foreign qualification is mandatory in the United States and is not optional. You should get your foreign qualification when conducting business of any sort out-of-state to avoid fines and penalties, back tax liabilities, and other legal ramifications.
A foreign qualification is done when a business plans to conduct business in a state different from where their business or corporation is registered. According to law, you must apply for and register for your foreign qualification when you do business in other states. For example, if you are incorporated in Texas, but your corporate headquarters are in California, you must have foreign qualification.
Common Criteria for Out-of-State
There is some criteria that judges whether or not you need foreign qualification. The common criteria for out-of-state business includes having an office or employees in another state, a company bank account in another state, conducting business through sales and service reps in another state, and owning other types of business property in another state.
Foreign Qualification Process
The foreign qualification process involves several steps that help you get your qualification for conducting business in another state. The first thing you need to do is select a registered agent that can represent your business in another state, followed by registering for a certificate of authority. The application for foreign qualification will include common information such as the name of your company, the date and primary state of organization or incorporation, the legal address for your company, the name and address of the registered agent and officers or members, and various signatures. Expect to pay fees and provide other legal documents for your business validity when applying for foreign qualification. To qualify, your company must also be in good standing in your state, which includes filing your business taxes on time and being up-to-date with all business documents.
Consequences of Bypassing Foreign Qualification
If you choose not to apply for your foreign qualification, you may be faced with a variety of consequences. By law, you must have foreign qualification in order to conduct business of any kind in another state, and bypassing this law has strict consequences. By not having foreign qualification, you can be faced with heavy fines and penalties as well as back taxes which can skyrocket when you are found t not have proper foreign qualification. You will also have the lack of the other state’s court system which means if you are involved in a lawsuit after conducting business in the other state, you are unable to defend the lawsuit in their court system since you are not a registered business in that state. If you are found to be doing business in another state, you will be forced to apply for foreign qualification, so it’s better to do it before any of these things occur.
Whether want to relocate corporate headquarters or target another market segment, there are a variety of reasons you may choose to conduct business in another state. If this is a decision your company has made, it is best to follow the guidelines and laws set forth and apply for foreign qualification before you begin conducting business, in order to avoid penalties and other negative consequences.