As your business grows, it can become increasingly likely that you'll expand beyond the borders of your home state. If you are selling goods or services online, you are often already accustomed to working with a variety of different states, and even countries, where your customers are located. But for more localized businesses, especially those located near the border of their state and another state, there may come a time when it makes sense to establish a presence in the other state.
Expanding business operations across state lines can be an exciting opportunity for companies seeking growth and increased market reach. However, conducting business in a state other than the company's original formation state often requires obtaining authorization known as a Certificate of Authority or a foreign authorization to do business in the new state.
In order to complete this process for your business, you'll need to understand foreign qualifications and the process of obtaining authorization to do business in the other state.
Foreign Qualification for Your Business
When a business entity operates in a state other than its formation state, it is considered a "foreign entity" in that jurisdiction. The term "foreign" does not refer to a foreign country but rather any state or jurisdiction other than the entity's original formation state. To determine whether authorization is required, the crucial factor is whether the entity is "transacting business" or "doing business" in the new state.
Each state has different rules that govern the businesses in their state. It's important that you are working with a professional that understands the qualifications of that state when you are looking to qualify your business in another state.
Obtaining Authorization for Your Business
The process of obtaining authorization to do business in another state typically involves several steps. While the exact requirements may vary from state to state, the following general steps provide an overview of the process:
- Step 1: Research and Compliance: It is crucial to research and understand the laws, statutes, and regulations of the target state regarding foreign qualification. Compliance with the specific requirements set forth by the state corporation, LLC, or LP statutes and the relevant state agency is essential.
- Step 2: Certificate of Authority Application: The next step is to file a Certificate of Authority application with the appropriate state agency responsible for business entity filings. This document serves as evidence that the entity is authorized to operate and conduct business in the target state. It is important to note that the name of this document may vary from state to state.
- Step 3: Required Documentation: The Certificate of Authority application typically requires certain information and documentation. This may include the entity's name, address, formation state, details of registered agents, and sometimes a Certificate of Good Standing from the formation state. It is essential to carefully complete and submit all required forms and pay any associated fees.
- Step 4: Registered Agent: Most states require appointing a registered agent, also known as an agent for service of process, who will act as the entity's official point of contact in the target state. The registered agent must have a physical address within the state and be available during regular business hours to receive legal documents and official correspondence on behalf of the entity.
- Step 5: Ongoing Compliance: After obtaining authorization, it is important to maintain ongoing compliance with the laws and regulations of the target state. This includes fulfilling annual reporting requirements, paying state taxes, and adhering to any additional obligations imposed by the state.
When a company intends to expand its operations and conduct business in a state other than its original formation state, obtaining authorization through a Certificate of Authority is often necessary. The process involves understanding the specific requirements of the target state, filing the necessary application, and ensuring ongoing compliance with the state's laws and regulations. By following these steps, businesses can successfully navigate the process of obtaining authorization to do business in another state and unlock new opportunities for growth and success.
Do I Need a Business Attorney?
If you or your business needs help with foreign authorization to do business, it's crucial that you talk to a business attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.
