Doing business in multiple states

During the incorporation process, you may hear terms like “foreign corporation,” “foreign LLC,” or “qualification,” depending on the type of entity being formed. However, the term “foreigner” does not relate to another country, but to your home state. This means that if your business is incorporated as a corporation or limited liability company in one state, but is operating in another state, the state of operation is considered the “foreign state.”

This is an important feature of enterprise compliance. To help you understand this issue, let’s address the concept of “Qualifying as a Foreign Entity” using the following scenario: Jane Doe formed a limited liability company called XYZ LLC in Delaware, but the business is conducted solely in Florida. In this case, XYZ is a Domestic LLC in the State of Delaware and possibly a Foreign LLC in the State of Florida.

Why a Foreign Entity?

There are a few situations in which a business owner may be required to make this type of filing, including:

• Maintain a brick or mortar location
• Employee recruitment
• Business transactions that require a special license
• Deciding to file a fictitious name or “doing business as” (DBA) in another state
• Real Estate Closing

There are also cases where filing as a Foreign Entity may not be required: These include:

• Telephonic sales
• An online business that sells products to people in other states.
• national advertising campaigns
• Selling through independent contractors

The process

If you meet any of the filing criteria for a foreign entity, or if you have been told to register as a foreign entity, there is a process for filing.

To qualify your business, it will go through a process similar to incorporating or forming an LLC. In most states, the document that is presented is called a Certificate of Authority or Alien Registration. As with any state application, there are filing fees, which can range from $25 to $750. In most states, there are additional documents that must accompany the Certificate of Authority or Foreign Registration. The documents consist of a certificate of good standing and/or a certified copy of the articles of incorporation or certificate of formation from the home state. The Certificate of Good Standing will demonstrate that your business is in good standing and that there are no outstanding fees.

A registered agent is required when filing as a foreign entity. Most registered agent companies provide their services in all states, so you will be able to keep the same registered agent service.

Once you have secured all of your documents, the Certificate of Authority, Certified Copy and/or Certificate of Validity, and any other supporting documentation, can be submitted to the state. Normal processing times vary from one to three weeks.

Additional requirements

As with other LLC or incorporation filing requirements, some states have other Foreign Corporation or LLC requirements. Arizona, Georgia, Pennsylvania, Nebraska, and New York require a business to advertise or publish in a local newspaper that their business now provides services and does business in that state. Many states also require foreign companies and LLCs to file an annual report. In some states, you will be required to file biennial reports. Of course, there will be filing fees. To help companies with this requirement, many states have online portals for filing annual reports.

So now that you have a better understanding of “rating,” be sure to do your due diligence. Check with any state you plan to do business in and research their laws. A good starting point for the investigation will always be the office of the Secretary of State.