Many businesses will form a corporation or LLC in the state where the company is headquartered and then assume they’ve done all they need to do. They may be overlooking an obligation to register their business in one or more additional states.
Do you need to register your business in multiple states?
The first matter to consider is where your business was initially formed or registered. Your company is a “domestic” corporation or LLC in that state. So if you live and work in California, and you have a California LLC, you may not need to register in any other state (see below for more info). But if you live and work in Arizona, and you have a Delaware corporation, you would mostly likely need to register in Arizona as a “foreign” corporation doing business there.
In this context, “foreign” means based in another state, not another country.
So if your company was formed in one state, but you live and work or your company is physically situated in another state, you will need to register in the place where you are physically located. The process of registering in foreign states is often referred to as “foreign qualification”. Typically a few forms need to be filed with the state and updated on an annual or biannual basis, and that’s all there is to it.
Here are some common situations where a business would need to file a foreign qualification:
- You have a physical office, store, restaurant, or other place of business in more than one state.
- You have an employee or employees in more than one state, and you’re paying payroll taxes where they are located.
- Now that so many people work and hire remotely, this can be tricky! For example, if you have a remote employee who lives in your state, and they move to another state, that may trigger the need for your company to register in their new state of residence.
- The business has multiple owners or partners, and they reside or do business in more than one state.
Don’t worry – it’s not the case that any contact with another state requires foreign registration. For example, if you sell consumer goods from California to all 50 states, that alone doesn’t give rise to a foreign registration requirement in the other 49 states. Likewise, if you engage an independent contractor in another state, that may not lead to a foreign registration requirement. But the rules can be tricky, so this is something you should consider from time to time.
What are the obligations when your company is registered as a foreign entity?
- You may need to pay certain taxes in each of the states in which you are registered.
- You’ll need to appoint an Agent for Service of process in each state (there are companies that can fill this role for you).
- You’ll need to stay on top of any annual or biannual compliance requirements in each state.
What are the consequences of not registering as a foreign entity?
- If a state determines that you should have been registered, they can come after you for fines and back taxes.
- You could lose the right to sue in a state where you should have been registered.
Best practice tip – when you do your company’s annual compliance (such as meetings and minutes), that’s a good time to consider whether you’ve started doing business in another state or otherwise may have reason to register as a foreign entity.
If you have questions, or if you believe your LLC or corporation may need to get up to speed on foreign registration requirements, feel free to contact me.