Foreign Qualification
Corporations and limited liability companies (LLCs) are considered domestic only in their state of formation. In all other states, they are considered a “foreign” entity. If your company expects to transact business outside your state of formation, your company may be required to qualify as a foreign corporation or foreign LLC in the applicable state(s).
There are many factors used to determine whether a company is transacting business in a state. Some criteria evaluated include:
- Whether the company has a physical presence in the state
- Whether the company has employees in the state
- Whether the company accepts orders in the state
- Whether the company has a bank account in the state
This is not a complete list and different states may have different criteria. However, these are some common factors to consider when trying to determine whether it is necessary for your corporation or LLC to foreign qualify. For questions regarding your specific situation, it is best to seek the advice of an attorney or accountant.
To qualify your company to transact business in another state, you must register for a certificate of authority in that state and pay the applicable state filing fees. Keep in mind that corporations and LLCs are subject to taxes and annual report fees in both the state of formation and any states where the company has foreign qualified.
lf you decide it is necessary to foreign qualify your corporation or LLC, BizFilings' Foreign Qualification Service provides everything you need in one turn-key package:
- Preliminary name availability check to ensure your name is available
- Preparation and filing of the certificate of authority
- Obtainment of a certificate of good standing or certified copy
- Initial state filing fees
The typical completion time for the Foreign Qualification Service is 6 to 8 weeks. If time is of the essence, BizFilings also offers an expedited foreign qualification service that reduces the completion time to 2 to 4 weeks.
Frequently Asked Questions
Q. What is a foreign qualification?
A. Corporations and limited liability companies (LLCs) transacting business in a state or states outside of their state of formation are often required to foreign qualify in those states.
A corporation or LLC is considered to be domestic only in the state where it was formed. In all other states, your company is regarded as a foreign corporation or LLC. The process of foreign qualification notifies the other state(s) that a foreign corporation or LLC is transacting business there.
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Q. What constitutes transacting business in additional states?
A. There are many factors used to determine whether a company is transacting business in a state. Some criteria evaluated include:
- Whether the company has a physical presence in the state
- Whether the company has employees in the state
- Whether the company accepts orders in the state
- Whether the company has a bank account in the state
This is not a complete list and different states may have different criteria. However, these are some common factors to consider when trying to determine whether it is necessary for your corporation or limited liability company (LLC) to file for foreign qualification. For questions regarding whether your particular company needs to foreign qualify, it is best to seek the advice of an attorney or accountant.
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Q. What paperwork is required to foreign qualify?
A. In order to foreign qualify in another state, you must file a certificate of authority, which is a document that grants a foreign corporation or limited liability company (LLC) permission to transact business in that state.
In addition, most states require a certificate of good standing from your state of formation before granting a certificate of authority. The certificate of good standing is a document that states your company has met all the necessary requirements for corporations or LLCs imposed by your state of formation.
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Q. What fees are required to foreign qualify?
A. Each state imposes a filing fee that must be paid when the certificate of authority is filed. These fees vary by state and by entity type. Additionally, foreign corporations and limited liability companies (LLCs) are required to pay taxes and annual report fees both in the state of formation and also in the state(s) of qualification on an ongoing basis.
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Q. Who can file a foreign qualification?
A. There are no restrictions as to who can submit a foreign qualification filing. Anyone who prepares and files the certificate of authority and completes any additional requirements (i.e. providing the certificate of good standing) with the appropriate state agency is eligible to foreign qualify a business in that state.
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Q. Do I need an attorney to file a foreign qualification?
A. No, an attorney is not a legal requirement to foreign qualify a business. You can prepare and file the certificate of authority yourself; however, you should understand the requirements of your intended state of qualification.
You can use BizFilings’ service to foreign qualify and save money on attorney fees. However, if you are unsure if a foreign qualification is required for your business, consult an attorney or accountant.
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Q. What information is required on the certificate of authority?
A. As with the formation documents, the information each state requires in the certificate of authority differs. Commonly required information includes:
- Company name
- Date and state of formation
- Name and address of registered agent in the state of qualification
- Name and addresses of officers (for corporations)
- Number of authorized shares and a listing of the different classifications of stock (for corporations)
- Signature of a corporate officer (often the president) or member/manager information (for LLCs)
Additional information is also requested by some states:
- Names and addresses of directors (for corporations) or members/managers (for LLCs)
- Duration of the corporation or LLC (which is often perpetual)
- Number of issued shares of stock (for corporations)
- Financial information, including information on assets
- Specific business-purpose clause outlining the type(s) of business the company will undertake
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Q. What happens if my company name is not available in the state where I'd like to foreign qualify?
A. If your name is not available in the state of qualification, BizFilings will notify you and ask for a second name choice. You may also file for a doing business as (DBA) name, also called a fictitious, assumed or trade name, for your company in the state of qualification to transact business using a name other than the name on your certificate of authority.
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Q. What is an example of a company that should foreign qualify?
A. Greenbush Telecom Inc. is a telecommunications company providing services in four other states. Greenbush is incorporated and maintains its headquarters in Georgia. It also offers its services in Florida, Alabama and Tennessee by employing contractors in these states. The company has offices and employees in these other states, and it offers services and accepts orders from residents of these states. Most likely, Greenbush Telecom would be required foreign qualify to transact business in Florida, Alabama and Tennessee.
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Q. What are the consequences of not foreign qualifying?
A. There are a number of things that could happen as a result not foreign qualifying your company in states where you are transacting business. You lose access to that state's court system until you file a foreign qualification. This means if an employee or customer within a state in which you are transacting business were to sue your company, you would not be able to defend the lawsuit in that state's courts, because your company is not recognized as a business there. Typically, if this happened, your company would be given time to undertake the qualification process in order to allow you to defend such a lawsuit.
The second consequence of not foreign qualifying your business is that if this is later discovered, your company will typically be subject to fines and penalties, as well as being liable for the back taxes for the period in which it transacted business in the state without being foreign qualified.
If your company is going to be transacting business in any states outside your state of formation, you need to foreign qualify it in those states. Because what is considered transacting business can be a gray area, you should seek the advice of an attorney or accountant if you have questions as to whether your company is or will be considered to be transacting business in a particular state.
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