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.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There are 5 comments left for Local Compliance When Incorporating in DelawareSylvie Froncek said: Tuesday, January 23, 2018
My business teaches mobile workshops around the country so there is no physical address, and I occasionally have people work with me on a contract basis. Do I need to do a Foreign Qualification?HBS Staff replied: Wednesday, January 24, 2018
Clients will typically not register in every state where they have a client or a customer, however they will often make sure to register in the state in which they are running the business from. For most clients, this is the state in which they pay income taxes, open their bank account, and a lot of times it is where they physically are.Aida Mandic said: Monday, December 18, 2017
I need help with local compliance in Michigan. I just finished incorporating last night. What are my next steps?HBS Staff replied: Tuesday, December 19, 2017
We will be happy to assist with your Foreign Qualification. Each state has its own requirements for completing this process. Harvard has experienced filing specialists that will obtain all the required documents and prepare and file the specific forms for your state in a timely manner. Would you like a phone call to proceed? You can reach me (Devin) at 1-800-345-2677.
Please let me know if you have any questions or concerns. Thank you.Li Zhang said: Monday, September 25, 2017
please send tax ID after the company is finished registeringHBS Staff replied: Tuesday, September 26, 2017
Please contact our Filings Team at email@example.com or 800-345-2677, Ext. 6910 for any questions or instructions regarding pending orders. Thank you.
Isaac Danielson said: Monday, September 4, 2017
I would like help on foreign qualification in Texas. Thank you.HBS Staff replied: Tuesday, September 5, 2017
Here is some information on foreign qualifying in Texas that you may find helpful:
We can help you with Foreign Qualifcation in Texas. Feel free to contact us via Live Chat from our homepage, via email at @firstname.lastname@example.org or via phone at 302-645-7400. We look forward to hearing from you.Adriana Gomez said: Wednesday, February 8, 2017
Dear Sirs, You are currently helping me out with the creation on an LLC. I would like to know fees and total costs of doing a Foreign Qualification in the state of NY. Thank you!HBS Staff replied: Friday, February 10, 2017
Please give us a call during working hours, 9-5, so we may give you all the details you would like. 1-800-345-2677.