The term ‘Foreign Corporation‘ sometimes confuses people. Though it can also refer to a corporation from a different country, when business advisers refer to a Foreign Corporation or LLC, they are usually talking about a domestic company with permission to operate in a state other than the one the company was formed in. This permission is often called a ‘foreign qualification,’ and it effectively registers your company with the new state so the state can collect taxes. With it, you can open up another branch of your company, or move your base of operations, without changing states. But why would a business want to do that?
Why would you want a foreign qualification?
There are a few reasons why a business chooses to qualify as a foreign entity in other states. One of the main ones being that the company simply wants to expand its operations – sales could be strong in their home state, and they figure they’ll take a crack at opening another store or office in a neighboring state. Since you need permission to do business in another state, they pursue a foreign qualification. However, some business owners also believe that they may save money on taxes by forming a business in a state like Nevada or Delaware, and then qualifying in the state they actually do business in. There are pros and cons to incorporating in another state, so be sure to weigh your options carefully.
How difficult is it to run a business in two different states?
It can be pretty tough! Each state will have its own law, regulations, and taxes. Make one wrong move and you can find yourself in hot water with the state government. It’s important that you find a good registered agent that will remind you when renewals are due. You should also look into hiring an accountant, since filing taxes in two separate states isn’t exactly straightforward.
What do you need to do to qualify to do business in another state?
First, you’ll need to create a Corporation or LLC in your home state – hopefully you’ve done that already. Next, you should get all of your ducks in a row before filing for foreign qualification. You will need a certificate of good standing – also called a certificate of authorization or a certificate of existence – which you can get from your Secretary of State’s office. You’ll also need a registered agent in any state you do business in.
Once you have all of your paperwork in order, and a registered agent lined up, you file for permission to do business as a foreign corporation. If everything looks good, you’ll receive a certificate designating your business as an authorized foreign corporation or LLC. Some states require that you renew your foreign registration every year or two, so make sure you know what you have to file to stay in good standing.
Ready to file for Foreign Qualification? Just click here and we’ll help you out! And, as always, if you have any questions, feel free to leave them in the comments below, or give us a call at 1(877) 692-6772!