If you’re an accountant, attorney, or in the business of otherwise professionally advising entrepreneurs, you may have had clients inquire about what they need to do to expand their companies into other states. One of the most important steps involved in the process is to file a “certificate of registration” in the additional states where LLC or corporation wishes to conduct business.
You may have heard it called by other names, such as “foreign qualifying” or filing a “certificate of authority.” Filing a certificate of registration means that the LLC or corporation wants to operate as a foreign entity in a state beyond its existing state of formation. An approved certificate of registration will identify the company as a legal and tax-paying entity within the state.
When is it Required?
Not all companies conducting business out of state need to file a certificate of registration. Just because a business generates revenue from other states doesn’t necessarily mean it needs to be foreign qualified.
For example, a marketing strategist who formed an LLC in Illinois would likely not have to file certificates of registration in the other states where she provides her services. This assumes that she does most of her work online from her home or office in Illinois, and she rarely meets clients in the other states.
Here are some signs that a business may need to file a certificate of registration:
- The LLC or corporation has a physical presence (such as an office or retail location) within the state.
- A large portion of the company’s revenue comes from the state.
- Someone who works for the company in-person meetings with customers regularly in the state.
- The LLC or corporation has applied for a business license in the state.
- The company has employees that work in the state.
- The LLC or corporation has a bank account set up in the state.
Here are some hypothetical examples of scenarios when a certificate of registration may be required:
- An LLC filed its articles of organization in Delaware but is physically located in New York. The company must foreign-qualify the business in New York.
- A regional restaurant chain that went through the process to incorporate (including filing a state document called “articles of incorporation”) and operate in Michigan wants to expand and build locations in Indiana. The company must foreign-qualify the business in Indiana.
- An LLC’s home state of registration is in Nevada. One owner (“member”) lives in Nevada, and the other lives in Tennessee. Recently, the member in Tennessee has been securing most of the company’s clients, meeting with them in Tennessee. The company must foreign-qualify the LLC in Tennessee.
- A wholesale organic snacks manufacturer is incorporated in Kansas and wants to have a warehouse in California. To legally run the warehouse in California, the corporation will likely need to apply for foreign qualification there.
Please note that while these situations are meant to offer some insight into when your clients may need to apply for foreign qualification, the rules and requirements vary by state. Your clients should seek the guidance of an attorney to make sure they know for certain.
How Does a Business File a Certificate of Registration?
Forms are available through the website of the state agency (usually the Secretary of State office) that handles business registration. Business owners can complete a certificate of registration on their own or have a trusted, knowledgeable resource prepare and submit it.
CorpNet’s filing experts handle the foreign qualification paperwork in all 50 states. I encourage you to refer your clients to us (that’s after they’ve gotten professional legal and tax guidance related to operating in other states) to ensure their forms are filed accurately.
Better yet, I urge you to sign up for the CorpNet Partner Program (as either a Referral Partner or Reseller) so that you can expand your revenue stream when offering CorpNet’s formation and compliance services.
Before filing a certificate of registration, business owners should make sure their companies are up to date on paying their state taxes and fees. Some states require that a business has obtained a certificate of good standing from its home state of registration before it will approve foreign qualification.
How Much Does Filing Cost?
The state fees and time it takes to process a certificate of registration vary depending on the state and the entity type. On average, the state fees are around $200 for an LLC and around $250 for a corporation, not including shipping and handling fees. Note that some state fees are significantly lower or higher, such as Utah at $72 and Massachusetts at $500 for LLC foreign qualification.
If the form is prepared by a third-party, there will be an additional cost as well. With CorpNet, that fee is minimal and well worth the peace of mind and convenience.
Are There Other Business Compliance Requirements?
Businesses that have a certificate of registration to operate as a foreign entity in a state must fulfill the state’s filing, licensing, reporting, and tax (state and possibly local taxes) remittance requirements for foreign-qualified companies. Common to all states is the requirement of maintaining a registered agent in the state. CorpNet is authorized to provide registered agent services in all 50 states so that one is a no-brainer!
Overall, foreign qualification is generally easier to manage than the alternative of forming a new domestic LLC or corporation in every state where the company wants to conduct business.
What Could Happen if a Business Neglects to File?
Failing to foreign qualify when it’s required can cause some significant issues for a business! In short, the company will be operating illegally in the states where it should be foreign qualified but isn’t.
Some of the fallout of failing to properly register an LLC or corporation as a foreign entity include:
- Fines and interest for the time the company was conducting business in the state and was not foreign qualified—that’s in addition to the filing fees the company should have paid.
- Payment of back taxes for the time the company was doing business without being foreign qualified.
- Ineligibility to sue in the state, because an entity can’t bring suit in a state where it isn’t registered.
Taking the Next Steps
State government (usually the Secretary of State) websites provide information about foreign qualification requirements in their jurisdictions. Before moving forward with filing a certificate of registration in a state, your clients should talk with an attorney and accountant (or tax advisor) to make sure they understand the legal and tax responsibilities of conducting business in that state.
My team is here to help your business clients prepare and submit their certificates of registration. You can advise them to connect with us directly.
Better yet, I encourage you to consider signing up as a CorpNet Referral Partner or Reseller. The CorpNet Partner Program allows you to earn additional revenue for your business while CorpNet fulfills your clients’ foreign qualification filing needs.
Contact us today to learn more about how you can offer more value to your customers and boost your bottom line!