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Foreign Qualification (also known in some states as a Certificate of Registration or Certificate of Authority) is the process of registering your corporation or LLC, which is considered domestic to the state in which it was formed and foreign to all other states, as a foreign entity in the state in which it operates.
Completing the process of foreign qualification allows your LLC or corporation to legally do business outside the state in which the company was formed.
Essentially, the Foreign Qualification process allows a Delaware company to be governed under the Delaware Corporate Law Structure but still operate locally in another state.
Generally, the foreign qualification process is taken care of at the time of formation. However, if you're uncertain as to whether or not your company is doing business in another state, ask yourself the following questions:
[Please keep in mind that it is typically best to consult an attorney regarding Foreign Qualification for your corporation or LLC.]
Another strategy we have learned over the years is to try to open a business bank account in the state in which you’d like to start operating your business. Most banks will not open a business bank account for a company that has not yet completed its Foreign Qualification process.
The Foreign Qualification process is different state to state, meaning you may have to file different documents in different states in order to foreign qualify your corporation or LLC in multiple states.
For example, there is a publication requirement when you file for Foreign Qualification in New York but not when you file for Foreign Qualification in New Jersey. Pennsylvania has a reporting requirement as well but it is only due every 10 years.
A Delaware LLC operating in California typically initiates the process of Foreign Qualification in order to maintain the protection of the company under the Delaware General Corporation Law and to be in compliance with all California local and state requirements.
Many businesses choose Delaware as their domestic state (the state in which they register their company) in order to take advantage of its strong corporate law structure—more than 50 percent of publicly-traded companies in the U.S. and 65 percent of Fortune 500 companies are incorporated in the state of Delaware.
Keep in mind you will be responsible for filing annual reports as well as taxes in the state in which you have filed for Foreign Qualification in addition to your company's domestic state.
You will also need to retain a Registered Agent in any state in which you file for Foreign Qualification.
The Foreign Qualification process differs state to state; however, states will typically require you to file:
Please remember that if your corporation or LLC is registered to do business in another state, you must obtain a business license and pay taxes so your entity is both legal and compliant.
Generally, if you do not adhere to local compliance regulations, you may be putting your company at risk. You may be forced to pay fines and you may not be able to protect your company's assets.
You will also likely be liable for all the back taxes your company has not paid, and you may also not be allowed in that state's court system until you complete the Foreign Qualification process.
The questions Harvard Business Services, Inc. will ask you in order to assist in foreign qualifying your Delaware company are:
Please keep in mind that a Delaware LLC or corporation registered to do business in any other state is still responsible for maintaining a Delaware Registered Agent and paying Delaware Franchise Tax in order to remain in good standing.
If you would like your Delaware company to operate in another state, we'd be happy to assist you.
Please call (800-345-2677, Ext. 6900), email or live chat with us to get started on your Foreign Qualification.
This information is to be considered general information Harvard Business Services, Inc. is not a law firm and cannot provide legal advice. For more information please consult an attorney.
The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurs, startups and general business topics.
Since 1981, Harvard Business Services, Inc. has helped form 181,038 Delaware corporations and LLCs for people all over the world.
Harvard can provide assistance throughout the life of your company. These custom services are the most popular with our clients: