Get A Foreign Qualification
If your Delaware company plans on doing business in another state, you will need to complete a Foreign Qualification. IncNow can help you get a Foreign Qualification done correctly without the hassle.
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What Is A Foreign Qualification?
A Foreign Qualification is the process of registering your LLC or corporation in any state other than its original state of formation. This registration allows you to legally “do business” in a new state as a “foreign” company.
“Foreign” vs. “Domestic” Companies
A company like an LLC or corporation is considered “domestic” only in the state where it was originally formed. For example, if you formed your LLC in Delaware, it is a domestic Delaware LLC.
In every other state, your company is considered “foreign.” So, if your Delaware LLC expands to Texas, Texas considers it a foreign company that needs to be registered there.
Why Is Foreign Qualification Necessary?
Properly registering your business in a new state is crucial for several key reasons:
- Comply With State Laws: Completing a Foreign Qualification ensures you are operating legally and in compliance with state rules, helping you avoid fines and penalties.
- Pay State Taxes: Properly registering your entity allows you to properly pay corporate, sales, or other taxes required by the state.
- Conduct Business: Many essential activities require proof of registration, including:
- Opening a company bank account.
- Getting state and local business licenses.
- Protect Your Company: Without being properly registered, you may lose the right to file a lawsuit in that state’s courts.
Once your Foreign Qualification is approved, the Secretary of State will issue a Certificate of Authority (or similar document), which is your official proof that you are authorized to do business there.
How To Foreign Qualify
The steps to complete a Foreign Qualification are different in each U.S. state. However, there are some parts of the process that are generally similar.
Step 1. Get the Required State Certificate
Most states require an official certificate from your company’s home state to prove it is active and compliant. Most states require this certificate to be recent, usually issued within the last 30-90 days.
This document has different names depending on the state, such as:
- Certificate of Good Standing
- Certificate of Existence
- Certificate of Status
Step 2. Appoint a Registered Agent
Nearly every state requires you to have a Registered Agent with a physical street address in the new state. The Registered Agent is responsible for receiving official legal and tax documents on your behalf. For example, if your Delaware LLC registers in Florida, you will need a Florida Registered Agent.
A few states have different rules. In New York, for example, the Department of State automatically acts as the agent for foreign companies.
Step 3. File the State Foreign Qualification Form
The key part of the Foreign Qualification process is filing the official state form. These forms have many different names, but they all ask for similar basic information.
Common form names include:
- Application for Authority
- Foreign Registration Statement
- Application for Registration
Some of the information you will almost always need to provide include:
- Your company’s exact legal name
- Your home state and original formation date
- Your new Registered Agent’s name and address
Step 4. Keep Up With Compliance
After your business is registered, the work isn’t over. Most states require foreign companies to file a report every one or two years to stay in “good standing.” Failing to file these reports on time can lead to penalties and could risk your company’s authority to do business in the state.
When Is A Foreign Qualification Required?
You need to foreign qualify your LLC or corporation when its activities in a new state become regular and continuous and the company has an ongoing business presence.
While every state has its own rules, some activities are clear signs that you need to complete a Foreign Qualification.
- Having a Physical Presence: Opening an office, warehouse, storefront, or other physical location in the state.
- Employing People: Hiring W-2 employees who live and work in the state.
- Regular, In-Person Business: Having a sales team or representatives who regularly conduct business in person within the state.
- Owning or Leasing Property: Having real estate used for business purposes in the state.
Frequently Asked Questions
What is a “domestic” and a “foreign” company?
A company is considered “domestic” only in the state where it was originally formed. For example, if you formed your LLC in Delaware, it is a domestic company in Delaware.
That same company is considered “foreign” in every other state.
So, if your Delaware LLC expands to also do business in Florida, your company is considered foreign by the state of Florida. This is why you must “foreign qualify”—to register your domestic company as a foreign company in a new state.
Do I need to foreign qualify to get a business license?
Yes, in most cases, you must foreign qualify your company before you can get business licenses in other states.
Think of it as a two-step process. The foreign qualification is Step 1. This registers your company at the state level, and once it’s approved, you receive a Certificate of Authority.
Step 2 is getting your local licenses. When you apply for a business license from a city or county, or a professional license for your industry, they will almost always ask for a copy of your Certificate of Authority. They need proof that you are in good standing with the state before they will grant you a license to operate.
Do I really need to foreign qualify?
While not every out-of-state activity requires it, choosing not to foreign qualify when you should is a major risk for your business. The consequences can be serious and costly.
Potential risks of not qualifying include:
- State Fines: States can charge significant fines, which can sometimes be retroactive for every year you were not in compliance.
- Owing Back Taxes: You may be held responsible for all the business taxes you should have paid during your time operating in the state, plus interest and penalties.
- Losing Access to Courts: Most states will not allow your company to file a lawsuit until you are properly registered.
- Loss of Liability Protection: In some cases, you could even risk losing the personal liability protection your LLC or corporation provides, putting your personal assets on the line.
For these reasons, foreign qualification is more than just a formality—it’s a necessary step to protect your business and ensure you can operate smoothly and safely in a new state.
How much does a Foreign Qualification cost?
The cost to foreign qualify can vary greatly between states. All states will charge a filing fee to accept and process the foreign qualification document. This can be anywhere from $70 to $750 in a state like Texas.