Now that you've formed a new Delaware LLC or Corporation, what's next? This is a popular question our new clients often ask. When forming a Delaware company, it will be a “domestic” company to Delaware and a “foreign” company to every other state in the United States.
Clients that form a Delaware company often operate their companies in other states as well as in other countries around the world, and therefore have local compliance matters in their home jurisdiction that need to be addressed.
The process of registering your Delaware company in another state is generally called “foreign qualification.” In other words, it is the way your home state gives you permission to operate with a Delaware company. It is their way of getting their “piece of the pie.” Clients will “foreign qualify” in order to make sure that their business is not only legal and valid in Delaware but in their home state as well.
One of the biggest misconceptions about Delaware is that once you form a Delaware company, you are done, and there is no need to qualify in your home state. Clients sometimes think that by forming in Delaware, they can escape compliance matters and/or fees in their home state or state of operation. This is not the case.
Please take note of these three areas when determining your local compliance requirements:
1. Taxation: One of the benefits of Delaware is that companies that file in Delaware but do not physically operate here often do not pay Delaware income tax. By qualifying the business in whatever state it is operating, hiring employees, or holding real estate, it becomes taxable in that state. It is a requirement by all states that a company register and pay taxes to the state in which it is physically operating. Most states will charge penalties and back taxes to companies that are caught operating without paying taxes.
2. Legality: While a Delaware company can operate in any state and any country in the world, it must comply with all local regulations in the jurisdiction. If not, the company may not withstand a legal challenge in that jurisdiction.
3. Banking: Often when opening a bank account, banks will require a Certificate of Authority in the state in which the bank account is being opened. Read more about opening a bank account for a Delaware company here.
It is our goal to inform our clients that they have compliance responsibilities in their home jurisdictions as well as Delaware, but we cannot advise you of all the local responsibilities in your particular jurisdiction. For compliance matters in any local jurisdiction contact the local Chambers of Commerce in your city, county and State.
We can, however, make filing your State “Foreign Qualification” a breeze. We offer Foreign Qualification services in all 49 states for Delaware companies and we discount the fee if you file your company through Harvard Business Services and then file the foreign qualification within three weeks of forming the Delaware company.