Foreign Qualifications/Registrations
Best Practice Summary

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Corporations, limited liability companies and other business entities are initially authorized to do business only in the state in which they are organized. State laws of each state require that foreign businesses (those organized and/or incorporated in another state) "qualify" or "register" if they wish to "do business" in that state. The qualification process is variously known as an "application for authority to do business" or a "foreign qualification application". The approval from the foreign state takes the form of a "Certificate of Authority" or a "Foreign Corporation Certificate".

Determining whether an entity is "doing business" in a state, and therefore is required to qualify as a foreign entity in that state, requires analysis of the law in that state. State laws are similar, but not identical, in this respect and accordingly each situation must be analyzed individually. Generally, a business should qualify to do business in a state if it intends to perform any of the following activities in that state:

  • Maintain an office
  • Hire employees
  • Own real estate
  • Serve as a general partner of a partnership organized in the state

Generally, an entity does not need to qualify to do business in a state simply to maintain a bank account, hold a meeting, effect sales through independent contractors, solicit orders or borrow or lend money.

Failure to qualify a business that should have been qualified carries statutory fines and penalties as set forth in the applicable state law.

Quick Reference Guide: A quick reference guide to state laws, requirement and forms can be found at 50 State Foreign Qualification Chart or at your service company's web site.

Benefits of Qualification/Registration

When qualified or registered, a foreign entity is entitled to the same rights and privileges, and subject to the same duties and liabilities, as the equivalent domestic entity. However, it should be remembered that a business entity doing business in two states is subject to the restrictions in effect in both. For example, Delaware allows a corporation to be a general partner of a partnership regardless of whether this power is set forth in its certificate of incorporation. Massachusetts, on the other hand, requires such a statement in the charter. Therefore, if a Delaware corporation seeks to become a general partner of a Massachusetts limited partnership, the corporation must have the authority to do so stated in its Delaware certificate of incorporation.

Responsibilities of Qualification/Registration

Service of Process
Qualification as a foreign entity in a state enables a business to sue or be sued in that state. Accordingly, a business must appoint a resident agent in each state in which it is qualified. A resident agent may be a natural person, but more often companies contract with a national registered agent service company. Appointing a service company to act as resident agent is often preferred because it lends accountability and assurance in knowing that important time-sensitive documents will be expeditiously forwarded to the appropriate person.

Best Practice Tip: A company qualified to do business in several states may qualify for a group discount by using the same resident agent in all states in which it and any of its affiliates are qualified.

Taxes
A foreign entity is liable for franchise or excise taxes in each state in which it is qualified to do business and must file tax returns in each such state.

Annual Reports
State law varies, but most states require annual or biennial report filings from all business entities qualified to do business in the state. Annual report forms are typically sent by the secretary of state's office to the business' resident agent and forwarded to the business unless other forwarding instructions have been provided to the resident agent. Even if a business does not receive a reminder including the annual report form from the state, the entity still the obligation to make the filing and pay any taxes or fees due. Annual report forms may be found online at most secretary of state's offices using LeapLaw's Corporate Connection or via your preferred service company.

Best Practice Tip: If the annual report will be prepared by company personnel, it may be most efficient to instruct the resident agent to forward the annual reports directly to the company's CFO or accountant or other responsible person rather than passing through an outside law firm. Forwarding can be easily arranged by e-mailing or faxing instructions to the resident agent. Keep a copy of the forwarding instructions in the minute book or record book for future reference.


Amendments and Reporting Structural Changes

Information provided to the state must be kept current and accurate. If a business changes its name, principal address or resident agent, increases its authorized stock, changes it jurisdiction an amendment to the certificate of authority may be required.

Quick Reference Guide: LeapLaw's 50 state pages provide a quick reference to when amendments are required at each state.

A merger may require an amendment if the surviving entity changes its state of incorporation or the name of the corporation.


Qualification/Registration Process

Consent of Directors, Managers or General Partners
Directors, managers or general partners must authorize the entity to qualify to do business in a foreign state and empower individuals to perform the acts necessary to establish qualification.

Consent of Directors

Name Availability and Name Conflict
The next step is to check the business name for availability in the target foreign state(s). LeapLaw's Corporate Connection) provides quick access to name availability information available online. A name conflict arises when the secretary of state's office deems a proposed name to be deceptively similar to the name of another business already registered in the state. Issues of trademark infringement must also be dealt with in some cases as a separate matter.

A fictitious name (also known as a "d/b/a", "doing business as" or trade name) may be used to cure a name conflict in some cases. An additional form may also be required along with the application for certificate of authority.

Additional Information:

Application Form
Forms may be found at LeapLaw's Corporate Connection (corporate and LP forms), LLC Connection (LLC forms) or via your preferred service company.

Best Practice Tip: Applications typically require a good standing or legal existence certificate issued by the state of organization to be attached. Specific state requirements can be found in LeapLaw's 50 state pages.

Once filed, certificates of authority should be kept in a section of the minute book or records book. It is convenient to maintain an index in the front of the minute book that contains a list of the states where the company is qualified along with the dates of qualification.


Cessation of Authority to do Business

Withdrawals
An entity may choose to withdraw from a state in which it is qualified to do business because it has ceased doing business in a state, merged out of existence, closed its offices in the state or no longer has employees in the state or otherwise is no longer obligated for taxes and annual filings in the state because it no longer is "doing business" in the state, as defined in the applicable state law. The withdrawal process and requirements vary from state to state and can be long and complex in some states due to tax clearance procedures. Generally, state laws should be consulted to assure proper steps are taken.

  • A resolution of directors, managers or general partners will usually be necessary to authorize withdrawal.

  • A tax clearance (a statement from the state's department of revenue that no taxes are owed) may be necessary to withdraw from a state. Your service company can assist you in determining the applicable tax clearance requirements and taking the required steps to obtain the tax clearance.

  • LeapLaw's Corporate Connection (corporate and LP forms), LLC Connection (LLC forms) or via your preferred service company.

Revocations
An entity's authority to do business may be revoked by the secretary of state for failure to:

  • File annual reports
  • Pay state taxes
  • Pay franchise taxes and/or penalties
  • Maintain a resident agent
  • Notify the state of certain changes required by statute

State law varies as to the manner in which an entity's authority to do business can be revived once it has been revoked. Some state statutes provide for revival simply by filing the past due annual reports, paying taxes and/or penalties to date, while others require the filing of a certificate of revival in addition. Some states require the entity to re-qualify entirely. Checking the status of an entity in a state may be done online in many cases at LeapLaw's Corporate Connection or by contacting your service company.

LeapLaw's
Related Best Practice Summaries

Good Standing Certificates
Selecting a Business Name
Service Companies/Registered Agents
Tax Good Standing Certificates
Trademarks and Service Marks

 
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