So you’re ready to do business in another state. Often confused with conducting business outside of the U.S., foreign qualification refers to doing business in another state — outside of the one you originally incorporated in.
When you file a foreign qualification, you receive a Certificate of Authority that gives you legal authority to operate your business in that state.
Each U.S. state maintains different criteria for businesses operating within its borders. Here are some common scenarios when you may need to foreign qualify:
You conduct the majority of your transactions in another state.
You have a business presence and operations, like a warehouse or office, and employees in another state.
You're paying taxes (employer payroll taxes or sales tax) in another state.
Your business partner lives and conducts business in another state. For example, you have incorporated your business in Nevada, but your business partner lives in California and meets with a significant number of clients there.
What to Do After Receiving Your Foreign Qualification
Here's what to do after you've filed for foreign qualification in another state, listed in order of priority. Getting insurance, taking care of bookkeeping and accounting, and securing business licenses for your business in its new state are must-dos. Find out what else should be on your list.
1. Have Your Business Insured in All States
Business insurances provide extra security and protection for your expanding venture. Operating your business in a new state could result in higher revenues, requiring higher coverage. And outdated insurance information can also render a policy void or inadequate.
Any major change in how your business is conducted needs to be reflected in all business insurance coverage. Major business changes can include a few scenarios:
Offering new products or services
Getting or revamping an office space
Building a website
Purchasing new capital equipment
There are several business insurance policies available, but here are a few key ones you’d most definitely need to look into once you’re foreign qualified:
Who It Is For
What the Insurance Covers
General Liability Insurance
For all businesses
Protects against financial loss that results from bodily injury, property damage, medical expenses, and slander.
Product Liability Insurance
Businesses that manufacture or distribute a product
Covers any damage caused by faulty use or defective product.
Professional Liability Insurance
Businesses providing a service
Protects against lawsuits from customers for errors or oversight of services.
Workers' Compensation Insurance
Business with employees
Covers medical expenses and lost wages due to work-related injuries and illnesses.
As your business evolves, revisiting your insurance support system will help you conduct business in the new state and avoid potential lawsuits.
2. Perform Bookkeeping for All States
Each state has its own specific tax brackets and statutes, and you'll need to be aware of what each state requires to avoid potential extra fees or paying double taxes. For instance, not all states provide credit for taxes paid in another state. If you’re a resident of Virginia but earned income in Arizona and paid taxes on it, you can’t claim credit for it.
Invest in bookkeeping software if you are a DIY kind of business owner or use Incfile’s Bookkeeping and Accounting service. A professional service will help with monthly bookkeeping and enable you to secure maximum deductions across all states of operation. Operating in another state can double your amount of work when it comes to bookkeeping and accounting. Our service will take care of all of it for you, saving you a ton of time.
3. Secure or Renew Business Licenses and Permits
Your business could be subjected to federal, state, city, and local licenses and permits in a new state. It all depends on your industry, business size, and location. Licenses and permits allow you to operate legally. Here are some of the common small business licenses you may need:
General Business License: This general business license can be required at the state or local level. Few states, like Alaska, Delaware, and Nevada, require all businesses to have a state-issued license in addition to any applicable local operating licenses.
Occupational or Professional License: Many states and cities require industry or service-based licenses. These licenses show that your business has the skill and knowledge to do a specific job while complying with safety and environmental protocols. Occupational licenses apply to various professions, including make-up artists, accountants, doctors, nurses, teachers, lawyers, therapists, electricians, and plumbers.
Health Permit: If you are in the food and beverage business or running a hair salon, you would be subjected to local health permits. These permits typically require an inspection to make sure your business is safe for the public.
Building or Zoning Permit: These permits are required by city or county government bodies. You might need one if you are a home-based business, are leasing an office in a commercial area, or are making renovations.
Most business licenses and permits must be renewed annually or biannually. Figuring out what license you need, filing the right paperwork, and tracking all the renewal times could be time-consuming. Incfile's Business License Research service helps you get a hold of all licenses required and assists with filing. We’ll also keep you updated on the latest licensing requirements so your business stays on the right side of the law.
4. Update Local Business Listings
The first task for doing business in another state is to update all the relevant and local business listings, such as Google My Business, Yelp, and Yellow Pages. By creating and updating all your online business listings, you're improving your business’s online visibility and searchability. In fact, accurate listings can improve conversion rates by up to 80%.
Consistent information across all business listings also builds trust and credibility and strengthens your brand image. But how many business listings do you need? Analysis has found that using 30-40 listing services optimized returns at over 320% more than a single listing.
To get started, Incfile's Google My Business service can help. If you form your business and get an EIN via our service, we can create your profile for you and get it verified with Google.
5. Get a Virtual Address and Mailbox
As a foreign-qualified business, you’ll need a legal business address to form the company in your new state and receive mail. A virtual address will give you a real street address in the state and allow you to check your mail wherever you are.
Using your home address can expose your private information when you're operating in a new state. And getting a physical office space might not be immediately feasible or a top priority. A P.O. Box won't be accepted on formation paperwork and doesn’t create the same credibility and trust as a physical address.
All states require you to have a Registered Agent, and the compliance requirements vary from state to state. So, if your home state is Georgia, and you are foreign qualified for Florida, you also need to appoint an in-state Registered Agent for Florida.
Some business owners consider listing themselves or a family member as a Registered Agent in order to save money. It’s legal to do this, but this comes with some risks. Your agent needs to be available during regular business hours to receive all legal notices and documentation. For example, if you missed your sales tax filing notification because the agent wasn't in office, you could lose your Certificate of Good Standing with the state and face hefty fines.
Incfile offers a Registered Agent service that will keep your business in compliance across all 50 states. If you opt to form your business in a new state with us, you’ll get a Registered Agent service for free for the first year.
7. Don’t Forget Your Multi-State Annual Report Requirements
You’ll need to file an annual report in your home state and in every new state where you are foreign qualified. It provides the state, investors, and other public bodies with vital information regarding your business, its activities, and finances.
This requirement usually starts in the year of formation and only ends when the business is formally dissolved. Annual reports need to be filed even if your business didn’t make any sales.
Some states, like Ohio, don't require an annual report at all. Other states require these “status” reports annually or biennially.
Some states only require annual reports for certain types of business entities. For example, Oklahoma only requires annual reports for LLCs.
States also have different filing due dates. States like Florida and New Hampshire require all annual reports to be due on May 1. Other states' deadlines are tied to your date or month of formation.
Your state’s fees might be a fixed or variable amount that’s tied to revenue or the number of members.
Failure to file an annual report can result in fines, such as late payment charges. Continued non-compliance will lead to the loss of your Certification of Good Standing, the administrative dissolution of your business, or the revocation of your foreign qualification standing and any running business contracts. It can also disqualify your business from getting funding since lenders need proof of good standing.
A professional Annual Report service like Incfile's can help you avoid common annual report filing errors, such as using the wrong form, having incorrect or missing information, and submitting an erroneous payment.
8. Renew or Create Business Contracts With Free Templates
As your business expands, you could deal with more customers, work with new suppliers and contractors, or hire more people. The new state might have different laws that can impact how your business is conducted. Therefore, these changes must be reflected in your business contracts.
Commonly used small business contracts include vendor contracts, employment contracts, website linking agreements, or general operating agreements.
Incfile’s Contract Template Library provides you access to 30+ business contracts you can customize. These contracts set the right expectations between parties and provide your business with a framework for operations.
Best Practices for Operating a Multi-State Business
Doing business in another state is exciting. But, it’s easy to lose track of management and paperwork. Here are some top business management tips to successfully operate a multi-state business.
Standardize and Document Your Operating Procedures
Think of doing business in a new state as starting a franchise. You want to maintain your business’s standing and reputation. The best way to do this is to document every detail about how things are done, whether it’s about invoices, purchase orders, or customer issues. Documenting all standard operating procedures will make your business operate like a well-oiled engine.
Familiarize Yourself With State Laws and Compliance Requirements
The new state might have different regulations governing employees and taxes. To ensure compliance from the get-go, it’s advisable to work with professionals with multi-state tax expertise. Researching tax requirements on your own at the town, city, county, and state levels also helps avoid tax penalties in the long run.
Create a Multi-State Employer Compliance Checklist
Employer policies can change across state lines. For instance, Connecticut and New Jersey have different laws regarding the Family and Medical Leave Act (FMLA). Create a compliance guidebook on common employee issues like leave, pay, jury duty, and disability benefits to be compliant across multiple states. You can research state employment laws or work with an employment attorney.
Build a checklist with specific dates to stay on top of state, federal, and local fixed and rolling employer compliance deadlines and requirements.
Open for Business in Another State? Get, Set, Go
To continue operating profitably and in compliance with laws across states, your business will require more support. Incfile can serve as your trusted partner in managing your multi-state business.
Swara Ahluwalia is a freelance content writer with experience in the technical, B2B and SaaS domain. She also has curated content for various lifestyle brands. In her downtime, you will most likely find Swara training for her next marathon or spending time with her two daughters.