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Does My Delaware Corporation Need New York Foreign Qualification?

By IncNow | Published February 3, 2016
  • What does it mean to be a “foreign” corporation?
  • How can I tell if I need Foreign Qualification for my corporation?
  • Where can I open my business bank account?

new york aerial viewDear IncNow,

I am the only founder of a Delaware C-Corp startup that is still in development, living in New York. Do I have to register for foreign qualification in New York? I live in New York and do it as a side project from home and can’t find an answer. I’m going to open a business account in a NY bank so I can use a corporate credit card.

Dear Customer,

A Delaware company can be operated from any state within the United States. The question is whether you will need to file with New York as a “foreign” company. The answer is it depends on your activities. This is what is typically referred to as Foreign Qualification. In this context, “foreign” does not mean outside of the United States, but rather it means outside of the state of formation.

Ask the five questions below. If the answer is “yes” to any of the questions, you typically need to file a New York foreign qualification:

  1. Will the legal entity hire and maintain any W-2 Employees?
  2. Will the legal entity be required to hold special licensing? (eg. Mortgage, Real Estate, or Contractor’s License)
  3. Will the legal entity hold any real property? (i.e. rental property, personal property, or commercial property)
  4. Will the legal entity have a brick-and-mortar location? (i.e. office building, or will a sign be hung somewhere and display the company name?)
  5. Will the legal entity be shipping any product from within the State?

The types of activities which do typically not require qualification in another state involve simply selling product or services in a state without employees or an office there. Each state has its own laws on whether your company’s level of activity is great enough to have to go on record. The information about what types of activities require qualification and the forms can be found on that state’s official Division of Corporations website.

In addition to Foreign Qualification, your foreign company may have other filing requirements in the state in which it is doing business. New York, for example, requires that a foreign LLCs file a “Biennial Statement” every two years (as the name implies) for a minimal fee of $9. They do not require you to list the names of Members or a Manager on this report. You can contact the state Division of Corporations for the state in which you are doing business to find out what fees or filings they may require of Foreign corporations and LLCs.

You can open a bank account wherever is most convenient for you (Delaware does not require you to open one in the state). Each bank has different requirements, so contact the bank to see if they require a Certificate of Authority in order to open an account for a company that has been filed outside that state.

You may also consider advantages of opening a Delaware bank account. This can include additional creditor protection based on a Delaware special exception that protects bank accounts from attachment by most types of creditors. Once an account is opened in Delaware, you can use the local branches where you are located for everyday banking and still have the protection of Delaware law. If, however, you open an account in your home state, that state’s laws will apply to the bank account.

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When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go