You’ve just picked a state to incorporate in and you’re feeling pretty good now that you’ve received that official stamped charter. Now you can stop wasting time on legal issues and go back to actually running your business, right? Not so fast.
Most companies do business outside the state in which they are incorporated. Although it sounds weighty, a foreign state registration simply means registering with states (other than your state of incorporation) in which your company does business. In this post we’ll address three common questions about foreign state registration:
- How do I know if my company is conducting business in a state so that I need to complete a foreign state registration?
- What is the point?
- What if I don't?
1. How do I know if my company is conducting business in a state? What it means to “do business in a state” is fairly complicated and varies state to state, so talking to your lawyer or registered agent service provider is a good idea before deciding in which states to file. A general question to review is whether your company engages in continuous and regular activities of a local character in that state (as opposed to interstate or between states) and how important are those local activities to your company’s revenues. One likely bet: if your headquarters are in a different state than where you are incorporated, you probably need to file a foreign registration. By contrast, merely shipping product to customers in a state without any continued presence or marketing activities in that state, should not trigger a foreign registration requirement.
2. What is the point? Why would a state want you to register your company? No surprise here, taxes and fees. Or put another way, if a domestic company (one that is incorporated in the state) has to do filings and/or pay fees and taxes, so should a foreign company operating within the same state. Accordingly, a company that registers as a foreign entity in a state should be ready for the state to impose franchise taxes and require fees and/or filings. The state may have other permit or licensing requirements as well.
3. What if I don't? If you don’t file a foreign state registration in a state where you are required to file, your company may have to deal with sobering consequences. You may not be able to file a lawsuit against a customer or vendor in that state’s courts. You may face back fees, late fees, and tax liabilities. You may even be ordered to stop operating your business in the state.
Filing foreign state registrations in the proper states is important for your company. Consider working with your lawyer or registered agent service provider to determine the states in which you should be filing a foreign state registration.