Virtual productivity and communication tools make it easy to work and run your business from just about anywhere. You could be based out of New York but have clients in California. The thing is, the exact state of where your company is operating out of can be fuzzy. As a small business owner, you may work with clients, companies and remote teams where you conduct business across state lines.
It can be tricky to figure out if you’ll need to incorporate or register an LLC in multiple states. While you may not unwittingly be going against the law, not properly filing your business in another state when it’s legally required could have you dinged with penalties or leave you unprotected by state laws. Here’s what you need to know if you’re running a business in multiple states.
Running a Multistate LLC
If you do business across state lines (rather than only in the state where you’re incorporated), you may need to register in another state or even multiple states. Additionally, if you are currently incorporated in a state other than your home state, you may also need to register in your actual home state.
This is called “Foreign Qualification.” The term may be confusing, as it sounds like you’re conducting business in another country. The reason why it’s called Foreign Qualification is that corporations and LLCs are considered domestic only in the state that they are registered. So, if you file for an LLC in Pennsylvania, it’s only considered domestic in Pennsylvania and it’s foreign in any other state. Doing business across state lines would put you in this foreign LLC classification.
You may need to file for a Foreign Qualification if your small business:
Has a bank account in that state
Accepts orders in that state
Has W-2 employees in that state
Applied for a business license in that state
Has a physical presence in that state (i.e., you run a restaurant or retail business)
Pays payroll taxes in that state
Frequently conducts in-person meetings with clients in that state
If you've answered yes to any of the above, chances are that you'll need to register for a Foreign Qualification. Otherwise, you run the risk of losing access to that state's court system. This means that if you get sued by a company in that state, you can't defend the lawsuit since your company isn't recognized as a business there. Conversely, you won't be able to file a lawsuit. You may also face penalties and fines for not filing and owe back taxes.
How to File a Foreign Qualification
If it’s in your best interest to move forward with filing a Foreign Qualification to conduct business across state lines, here are the steps to do so. Incfile can also complete these tasks on your behalf with our Foreign Qualification service. We can handle all the research and paperwork for you, freeing you up to focus on running your business.
1. Do a Search to Ensure the Business Name Is Available in Each State Needed
Just like when you incorporated your LLC, you need to run a business name search to ensure your foreign LLC business name is not being used in any other states you’re looking to file and conduct business in.
After running the search, if your business name is not being used, register it. If it is being used, you will need to come up with a “fictitious name” or DBA (doing business as) name. You can file your fictitious business name right on Incfile quickly and easily.
2. Appoint a Registered Agent in Each State
A Registered Agent is required of all businesses. Since you are not present in each state you do business in, you need a Registered Agent at a physical address to accept and collect important legal documents that are mailed to your business. The Registered Agent then ensures you or the designated person receives all of the documents that need to be taken care of.
Incfile has a Registered Agent service that is easy and dependable. We are available to act as a Registered Agent in all 50 U.S. states. Using our service can quickly get you an agent in any and all states you need.
3. Get a Certificate of Good Standing from the State You First Incorporated
A Certificate of Good Standing shows that your business is compliant and law-abiding within the state of incorporation. When you are conducting business across state lines, some states want to ensure you are a legitimate business and are in “good standing.”
Last, file all of your documents with any state you are looking to conduct business in to obtain a Certificate of Authority. There are specific filing fees for each state that you need to research so you pay the correct amount.
The filing process can generally be done online, but there could be requirements to mail in your documents instead. Turnaround time for acceptance or rejection varies from state to state, but you may have the option to pay an additional charge to expedite the process. Once you have received your Certificate of Authority, you are legally able to conduct business within that state.
When You Don’t Need to Register a Foreign LLC
There are a few instances when you don't need to file a Foreign Qualification, which includes:
Doing Interstate Business
For example, if you run an online store and ship your goods all over the country, you won’t need to file a Foreign Qualification. However, let’s say you operate a warehouse in California, but use that warehouse to ship goods primarily to your home state of Kentucky. Then, in that instance, you’ll need to get a Foreign Qualification in California.
You’re a Freelancer with Clients in Different States
If you’re a freelancer (also known as self-employed or a 1099 contractor) and have clients all over the country, you won’t need to file an LLC in each state where your many clients are located. However, if you frequently meet with a client in a single state, then you may have to file a foreign qualification. If you are unsure, it may be best to consult with an attorney.
The rules for running a business in multiple states can be nuanced and tricky. If you have questions or need help with filing an LLC for your small business in multiple states, Incfile can help walk you through the intricacies of starting your company and filing a Foreign Qualification.
Matt Weik is the Founder/Owner of Weik Fitness, LLC and is a well-respected fitness expert/author with a global following. He’s a certified strength and conditioning specialist, personal trainer, and sports nutritionist. His work has been featured in over 85 fitness magazines and over 1,500 websites. You can contact Matt via www.weikfitness.com or on his social channels found on his website.