After a year of economic upheaval, spurred on by the global pandemic, individuals and businesses alike began to flee their home states in droves. According to a Fox Business report, a quarter of all interstate moves in 2020 were due to COVID, with one of the largest drivers being the shift to working from home.
If you, as a business owner, found yourself among these statistics, you might be wondering how you can continue to operate your business from home if you’ve moved away from your state of formation. While regulations and requirements vary from state to state, the most effective way to maintain your operations and avoid fines and fees is to file a Foreign Qualification.
What Is a Foreign Qualification?
A Foreign Qualification is most often used by business owners looking to grow or expand their operations to states other than the one in which they formed their business entity. Foreign Qualifications are necessities if you wish to conduct business in multiple states without forming a separate entity in each. But in the case of a personal move that leaves you running the business remotely, you’ll need to file a Foreign Qualification in your new state, so you can transact business from your location.
What Does a Foreign Qualification Allow Me to Do?
A Foreign Qualification ensures you can operate your business legally wherever the qualification is filed. If you fail to file a Foreign Qualification, you may subject your business to legal repercussions, fines, and even dissolution. By obtaining Foreign Qualification as a remote business owner, you’ll be able to:
Operate legally in your new state and continue transacting business in the state in which your LLC, S Corp or C Corp was filed.
Hire employees who will conduct business primarily in the foreign qualified state.
Open business bank accounts, apply for loans and seek funding within the state in which you have Foreign Qualification.
Open a retail location, office space or other business-related facility in your foreign qualified state.
How Do I Register as a Foreign Corporation or LLC?
Most businesses begin as a domestic corporation or LLC, operating in their state of formation. As the business grows into new markets and crosses state lines, Foreign Qualifications become necessary for expansion. Registering your business as a foreign corporation or LLC can be a relatively painless process, but there are numerous steps you’ll have to take, including:
You already have a Registered Agent in the state in which you formed your business, but to file a Foreign Qualification, you’ll need to designate a Registered Agent in each new state. For remote business owners, you might decide to keep your Registered Agent in your business’s formation state and name yourself as the agent in your new state, but there are risks. If that sounds like too much hassle, our Registered Agent service can help you secure a new agent quickly and easily.
Line Up Your Certificates
Ultimately, you’ll need a Certificate of Authority to file a Foreign Qualification. To get that, you’ll want to obtain a Certificate of Good Standing from the state in which your business was formed. This is required in order to show that you have met all the state regulations for filing and compliance.
Do I Have to Register My Business in Every State?
It depends. Foreign Qualifications are based on the amount of business being transacted in each state, but there are no hard-and-fast rules. At minimum, you’ll want a Foreign Qualification for your new home state. You may also need Foreign Qualifications for other states if you employ remote staff members. This varies based on state regulations and the type of business being conducted by your employees. It’s always best to check with the Secretary of State for any location in which your remote employees reside.
There are also other alternatives to Foreign Qualification. You may decide to move your LLC or corporation to your new home state. This could involve transferring your existing business entity, or dissolving it and starting over with a new business formation.
Whatever you decide to do, it is critical that you follow the appropriate steps in both your new home state and the state of business formation to ensure your entity is protected and remains in good standing. We know it can be a lot to take on, but that’s why we offer a Foreign Qualification service to remote business owners just like you, to ease the burden and make your transition as smooth and seamless as possible.
Wendi is a freelance writer based in Indianapolis, IN, with over a decade of experience writing for a variety of industries from healthcare to manufacturing to nonprofit. When she isn't working on solutions for her clients, she can be found spending time with her kids and husband, working in the garden or doing more writing (of the fiction variety).