The requirements for each state are different, but businesses that operate in another state are generally required to register as a foreign entity in that state. The term “foreign entity” refers to any company that is formed in a different state than the state where the company is conducting business.
Your company is required to register in another state if the activities it conducts in that state are considered “transacting business” in that state. Generally, businesses are considered to be transacting business in the state if they hire employees or maintain an office, store, warehouse or facility in the state.
Most states make exceptions if the business’s only activity in the state is soliciting sales orders or if the business is conducting an isolated transaction that is not in the course of similar, repeated transactions.
Requirements for registering foreign entities:
- Registration and Fees. Foreign entities are required to file company information and pay registration fees.
- Business Taxes. The business may be required to pay business taxes, franchise taxes and/or excise taxes.
- File Assumed Names. If the entity is doing business under an assumed name, the company needs to file an assumed name certificate, usually with the state and/or in each county where it intends to do business.
- Licenses. The state, county or municipality may require special business licenses.
- State Sales Tax. The business may be required to collect state sales tax.
- Other Taxes. If a company is doing business in a state, it will probably be required to file state income tax and employment tax returns.
Consequences of not registering as a foreign entity:
- Prohibited from Doing Business. The company may be prohibited from transacting business in the state until it registers as a foreign entity.
- Limited Legal Recourse. A non-qualified foreign business is barred from bringing suits in state court against a customer or other party with whom it has a dispute. However, the company may defend a legal action brought against it.
- Penalties. If the foreign entity doesn’t register and pay franchise or other taxes in the state, it may be held liable for all fees and franchise taxes that would have been imposed if the entity had been properly registered as a foreign entity as well as penalties and interest on these unpaid amounts.
Business legal issues are complex. Business owners should consult with their legal and tax advisers on such matters. For more information on business legal matters, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or firstname.lastname@example.org.