Remote Workers and the Need to Foreign Qualify

Many clients from around the United States continue to inquire and proceed with forming Delaware companies as they want them to be protected by the best corporate law structure within the country.  Clients do not have to live in, visit or physically operate their company inside of Delaware to form a domestic Delaware entity.  At Harvard Business Services, Inc. (HBS), we receive inquiries daily from clients who wish to form companies and hire remote employees that work around the country.  And, while Delaware continues to be the more business-friendly state in which to incorporate, clients sometimes have to consider other factors during the initial and post-formation process, such as obtaining a Foreign Qualification for their company.

For many of our domestic US clients outside of Delaware, the first step to success is forming the Delaware company, obtaining the EIN for the company (if needed) and then considering registering the Delaware company to do business physically in another state so that the company is protected by the law structure of Delaware while operating physically in the other state.  This is also a factor to consider for clients that plan to operate entirely remotely and for companies that plan to hire remote employees.

Clients traditionally have many questions regarding the process as they want to also remain compliant in their respective home jurisdiction, even if operating remotely. Typically, if not physically operating inside of Delaware, we often see clients foreign qualify somewhere if opening a storefront, hiring an employee, etc.  For example, we sometimes see tech companies that need to hire a robust team of creators or code writers in different states, which sometimes will necessitate the need to foreign qualify the company in those specific states.  More often than not, we also see consulting and web development companies planning to hire remote employees that require this service as well.

Perhaps you have a Delaware Corporation that has a physical location in Texas and is already Foreign Qualified in Texas but plans to hire employees remotely in other states, such as Oklahoma and Tennessee.  Clients typically obtain the Foreign Qualification for the company in Oklahoma and Tennessee so that the company is also compliant in those other states as well.

Sometimes, clients feel that they do not need to foreign qualify their Delaware business in another state since they’re hiring remote employees that plan to operate from a home address in another state.  We traditionally see clients obtain the Foreign Qualification even if the remote employee is working from home. This is still a physical location within another state and clients often want their entity to be compliant within all secondary jurisdictions.

So, do you need a foreign qualification? If you’re ever unsure about whether or not your company will need to foreign qualify after hiring an employee from out of state, seek legal counsel from an attorney or work with a tax professional to determine if a Certificate of Authority for a Foreign Qualification needs to be filed.  If you plan to form a business with the goal of hiring remote employees in other states, you may want to consider Foreign Qualifying your company in all respective secondary jurisdictions.

If looking to form a new Delaware company, or if you have any questions regarding the Delaware formation process and obtaining Foreign Qualification for an existing Delaware company (or company domestic to another state) in another state, we can be reached at 1-302-645-7400 or 1-800-345-2677 ext. 6900 or via email at info@delawareinc.com. We can also be reached via skype at delawareinc.