During the incorporation process, you may hear terms such as “foreign corporation,” “foreign LLC,” or “qualification,” depending on the type of entity being formed. However, the term “foreigner” does not refer 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 business compliance. To help you understand this problem, let’s approach the concept of “qualification 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 is a foreign entity submitting the application?
There are a few situations in which a business owner may be required to make this type of presentation, including:
- Maintain a brick or mortar location
- Employee recruitment
- Business transactions that require special licenses
- 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 is likely not required – these include:
- Telephonic sales
- An online business that sells products to people in other states.
- National advertising campaigns
- Sell through independent contractors
If you meet any of the filing criteria for a foreign entity, or have been told to register as a foreign entity, there is a process for submitting the application.
To qualify your business, it will undergo a process similar to that of incorporating or forming an LLC. In most states, the document that is presented is called a Certificate of Authority or Foreign 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 Validity and / or a Certified Copy of the Articles of Incorporation or Certificate of Formation from the state of origin. The Certificate of Good Reputation will show 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 serve all states, so you can keep the same registered agent service.
Once you have secured all of your documents, the Certificate of Authority, Certified Copy, and / or Certificate of Good Reputation, and any other supporting documentation, can be sent to the state. Normal processing times vary from one to three weeks.
As with other LLC or partnership filing requirements, some states have other LLC or foreign corporation requirements. Arizona, Georgia, Pennsylvania, Nebraska, and New York require a business to advertise or publish in a local newspaper that their business is providing services and conducting 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 submit biennial reports. Of course, there will be filing fees. To assist companies with this requirement, many states have online portals for submitting annual reports.
So now that you have a better understanding of “qualification,” be sure to do your due diligence. Check with any state in which you plan to do business and research their laws. A good starting point for your investigation will always be the Secretary of State’s office.