Doing Business in Another State

June 05, 2018

doing-business-another-state

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:

  1. Registration and Fees. Foreign entities are required to file company information and pay registration fees.
  2. Business Taxes. The business may be required to pay business taxes, franchise taxes and/or excise taxes.
  3. 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.
  4. Licenses. The state, county or municipality may require special business licenses.
  5. State Sales Tax. The business may be required to collect state sales tax.
  6. 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:

  1. Prohibited from Doing Business. The company may be prohibited from transacting business in the state until it registers as a foreign entity.
  2. 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.
  3. 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 kathy@tremmellaw.com.

Kathy Tremmel

Tremmel Law

Kathy Tremmel has significant experience both as a business attorney and corporate executive. Her career spans both legal practice and business management and she opened her own solo law practice in January 2010. In additional to running her own practice, she also is of Counsel with Selman, Munser & Lerner, which is a business transaction law firm in Austin, Texas. Ms. Tremmel has more than 10 years’ experience as a business attorney, providing transactional legal services to a diverse client base, from start-up ventures to well established companies. She helps companies with all their contracts, including customer agreements, non-compete agreements, employment agreements, buy-sell agreements, loans, and leases, helps people set up new businesses, and represents buyers and sellers of businesses. In addition, Ms. Tremmel has 10 years of management experience working with start-up companies. As VP of Operations at Tusker Group, an international litigation support company, Ms. Tremmel led international teams, managed production and quality issues, handled price negotiations, worked closely with clients to determine the scope of their projects, provided project management services, and developed, implemented and documented best practices for processing and training. Ms. Tremmel earned a Doctor of Jurisprudence from the University of Colorado School of Law and a Bachelor of Arts from Dartmouth College. She is a Texas licensed attorney and a certified Project Management Professional.
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