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Incorporating your company in Delaware is an important first step in the governance, the protection and, ultimately, the longevity of your company.
Delaware has the strongest corporate law structure and the largest body of case law in America, and is recognized as possessing the most business-friendly environment in the country. This why over 64% of Fortune 500 companies and almost all new IPOs call the state of Delaware home.
Foreign Qualification is the process of registering your Delaware LLC or corporation, which is considered domestic to the state of Delaware and foreign to all other states, as a foreign entity in your company's home state.
If you plan to operate the business, open a bank account, hire employees or hold an asset in any state other than the state of incorporation, you may be required to file for Foreign Qualification. If you fail to do so, you may be jeopardizing your company.
Other states understand that Delaware’s corporate laws provide greater asset protection and more privacy and, because of this, many people choose to incorporate their companies in Delaware. A common misconception is that by incorporating in Delaware, people can avoid taxation and other financial obligations in their company's home state.
Generally, this is not true. In most cases, if a company generates revenue of any kind, there will be an inherent tax liability in their company's home state. States require that businesses operating within their jurisdictions are licensed, registered and pay taxes.
Filing for Foreign Qualification for your Delaware LLC or corporation in the states in which it operates will render it both legal and taxable.
Another common misconception is that if a company operates 100% online and there is no brick and mortar operation, Foreign Qualification isn't necessary. Again, in most cases, this is untrue. It may depend on where the servers are located and where the business banking is done (the latter is considered one of the primary activities of a company’s operations).
You’ve taken a positive first step by incorporating your company in Delaware, but make sure you meet all compliance obligations in your company's home state.
As Delaware business formation specialists, Harvard Business Services, Inc. is familiar with the Foreign Qualification process—the required documents, application, fees and time frames, which vary—for every state.
If you have any questions regarding the Foreign Qualification of your Delaware LLC or corporation, please contact us via live chat or phone at 800-345-2677).
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 8 comments left for What Is Foreign Qualification?Tony Rodriguez said: Tuesday, August 21, 2018
If I was a former member of an LLC in California, and the company ceased operations in 2015, can I begin operating again , using the same name, and re-form the LLC through the state of Delaware?HBS Staff replied: Tuesday, August 21, 2018
Tony -- Traditionally, if the name is available in Delaware the approval is simply a formality.Kingsley Ita said: Sunday, March 11, 2018
My Delaware company is 2yrs old now, please when would it be made a FOREIGN ENTITY in the state of Texas, as my small business is right here in Dallas? I was promised it would be transferred to Texas or made out here in 6months, what’s going on?HBS Staff replied: Monday, March 12, 2018
You can read more about Foreign Qualification here: https://www.delawareinc.com/ourservices/foreign-qualification-for-corporations-and-llcs/
You have to file for Foreign Qualification in Texas if you'd like to do business there with your Delaware company. Foreign Qualification does not transfer automatically. We can help you file; you can contanct us via Livechat from our homepage or call us at 1-800-345-2677.Rene H. Werder said: Friday, December 1, 2017
About 10 years ago we have formed and registered an LLC in Delaware. You are presently acting as our representative The only assest in this LLC is a property in Mexico single family home. No operational nor financial transactions have or will take place until such time as the LLC is transferred to an other owner potentially one of our children.Any need for Foreign Qualification??? Your advice will be greatly appreciated.HBS Staff replied: Monday, December 4, 2017
Typically, the Foreign Qualification process is for a Delaware entity that is operating in another state of the United States. Traditionally, if physically operating a company in another country, you may want to speak to an attorney to find out what needs to be done in that country in order to comply with their rules and regulations.DR SANATAN RAY CHAUDHURI said: Saturday, August 19, 2017
I want a any Diploma or Degree course of law from your state with minimum cost. Please let me know.HBS Staff replied: Tuesday, August 22, 2017
We are an incorporation company and thus cannot answer your question about law schools. Sorry.Kim said: Friday, April 28, 2017
We are a california corp that would like to do a one time job in Florida. We will need to be pulling permits in Florida so do we in addition to being a foreign entity need to fill out a contractor endorsement application?HBS Staff replied: Monday, May 1, 2017
That is outside the realm of our experience, unfortunately. You can check with a local SCORE office or talk to someone at the Florida Division of Corporations for assistance, perhaps.
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