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Posted January 10, 2022
| Updated May 23, 2022

Expanding a Small Business to Another State: What You Need to Know

Extending your small business’s presence across state lines can help your company reach new markets, grow revenue, and boost profits. But how do you expand a small business into another state? And what’s involved in operating a business in multiple states?

There are some filing requirements to operate in other states legally and tax-related considerations that need attention. Of course, none of that should be taken lightly, so entrepreneurs should research the requirements of the state(s) where they want to conduct business. It’s also beneficial to consult an attorney and tax advisor or accountant for professional advice.

Operating a Business in Multiple States

Legally operating a business in multiple states generally won’t require starting an entirely new business entity in every state. Typically, limited liability companies (LLCs) and corporations will have to apply for foreign qualification instead.

Foreign qualification is the process of registering a company to conduct business in another state. Whether or not a business needs to register depends on several factors.

General Guide for When Foreign Qualification Is Required

Nexus (either a significant physical or economic connection to the state that requires a business to comply with that state’s tax laws) comes into play when determining if foreign qualifying is necessary. Different states have different definitions for what they consider doing enough business in the state to constitute nexus. Generally, nexus is established when:

  • The business has a physical presence (e.g., office space, warehouse, or retail store) in the state.
  • The business stores inventory in a state — such as merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in a warehouse owned or operated by Amazon.
  • The business conducts in-person meetings with clients or customers in the state.
  • The business is structured as a limited liability company, C corporation, S corporation, or a limited partnership (LP).
  • The business has employees living or working in the state.
  • The business’s sales or revenue in the state have reached a specific threshold that the state considers having “economic nexus.”

Unfortunately, states aren’t always crystal clear about what specific activities constitute “doing business.” The mere activity of selling products or services in states beyond the LLCs or corporation’s home state doesn’t necessarily mean the company will be deemed conducting business in the other states. For example, suppose a business is a consultancy or the business owners are freelancers and conduct most of their work online. In those situations, foreign qualification usually isn’t required. E-commerce businesses are different because there are sales of products involved and possibly a warehouse with products located in the state.

Other business activities that typically do not constitute conducting business in a state:

  • Defending or settling a lawsuit
  • Dealing with internal LLC or corporate activities such as member meetings
  • Having a bank account in the state
  • Selling through independent contractors
  • Securing or collecting debts
  • Conducting an isolated transaction that is completed within 180 days and not repeated

How to Foreign Qualify to Expand a Small Business to Another State

1. Submit a Certificate of Authority

Most states have similar procedures to file a foreign qualification. It starts at the Secretary of State’s office in the state where the business will expand its operations. Companies need to submit a form, which is usually called a “Certificate of Authority,” and pay the required filing fees. The business owners may need to provide documentation (Certificate of Good Standing) that the business entity has paid its taxes and followed business compliance rules in its home state before the other state will approve foreign qualification.

2. Conduct a Business Name Search

Next, conduct a name search in each state to ensure the business name is legally available. If not, the business will need to use a “fictitious name” (also known as Doing Business As or DBA) in that state.

3. Designate a Registered Agent

Once the business has a foreign qualification, they need to appoint a registered agent. A registered agent (also known as a statutory agent or registered agent) is a person or company with the authority to accept service of process (legal documents and government notices) on behalf of a business.

A registered agent can handle in-state responsibilities such as:

  • Official federal and state correspondence
  • Subpoenas for information
  • Tax notices from the IRS and local tax authorities
  • Lawsuits
  • Summonses to appear in court
  • Corporate filing notifications

States often list authorized registered agents on their websites. It can be highly advantageous to use a reputable registered agent services company, like CorpNet, that can provide its services in all states. It simplifies things because there’s just one point of contact for all registered agent matters, and it may be more cost-effective, too.

4. Obtain Required Licenses and Permits

State and local governments may require certain business licenses and permits for a company to operate in their jurisdictions. Even foreign qualified companies must follow those rules, so it’s essential for business owners to research the requirements.

One significant point to consider is if the business must collect and remit sales tax in the state. Whether or not a company has a physical presence, such as a warehouse in another state, having an out-of-state employee may signify enough presence to require the business to collect and pay sales tax in that state. Once it’s determined a business has sales tax nexus in a state, it is required to apply for a sales tax permit to collect sales tax for all taxable transactions made in the state and pay those monies to the state’s Department of Revenue.

5. Register for Payroll Taxes

If the business has employees in the new state, it must register for payroll taxes with the state tax agency. It will need to obtain a state income tax withholding number (and unemployment insurance number) and withhold state income taxes from employees’ pay. Even if the state does not have an income tax, businesses must still withhold and pay federal income tax.

The business must also register with the state’s Department of Labor and be compliant with the Department’s rules for employees in the state.

  • Minimum wage
  • Labor laws
  • State disability insurance
  • Worker’s compensation

There may be other requirements as well. It can be helpful to use an experienced payroll services company that is familiar with handling multi-state workforces and knows the regulations in each state.

Consequences of Not Filing for Foreign Qualification

Neglecting to foreign qualify when required can cause significant issues for a business and its owners.

Possible Penalties for Failing to File for Foreign Qualification

  • Fines and interest for the time the company was conducting business in the state and was not foreign qualified
  • Payment for missing 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 enforce contracts in the state
  • Ineligibility to sue in the state, because an entity can’t bring suit in a state where it isn’t registered
  • Loss of the business owners’ personal liability protection in the state – By not complying with the state’s laws, a court might rule the corporate veil shielding business owners from responsibility for the business’s debts has been pierced. That puts the owners’ personal assets at risk.

CorpNet Can Help You Set Up Your Corporation or LLC for Doing Business in Multiple States

Simplify the process by asking CorpNet to help you! If you would like to expand your business into another state, CorpNet can help you with your foreign qualifications filings, registered agent needs, business license applications, payroll registration, and more. We’re just a phone call or email away.

Contact us today to get discuss ways you can expand your small business!

<a href="" target="_self">Nellie Akalp</a>

Nellie Akalp

Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of four amazing kids. As CEO of, she has helped more than half a million entrepreneurs launch their businesses. Akalp is nationally recognized as one of the most prominent experts on small business legal matters, contributing frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and Fox Small Business. A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and dive into small business ownership. Through her public speaking, media appearances, and frequent blogging, she has developed a strong following within the small business community and has been honored as a Small Business Influencer Champion three years in a row.

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