Incblog for Entrepreneurs

Covering entrepreneurship and business start up questions for non-residents and US citizens.


Apr 22 2009

Authority to do business in another state

by John Gordon | 11:04 GMT

The application for authority and what it really means

The filing of an application for authority in a state means that the company is allowed to do business there. The laws that administer how the company is run are unaffected – this is covered by the laws of the state where it is incorporated. However, within the ‘new’ state the company must follow the same rules and regulations as a local company, and generally will pay the same taxes.

To illustrate:

Company A is a New York corporation, Company B is a Delaware corporation. Both are neighbors in an office building in Albany. Company A filed its Certificate of Incorporation with the Secretary of State of New York, has 200 shares with no par value which are issued to one person, who is also the director and the president. Company B filed its Certificate of Incorporation with the Secretary of State of Delaware, then obtained a certificate of goodstanding and prepared an application for authority to do business in New York, filing the goodstanding and application with the Secretary of State of New York.

Each year, the New York corporation and the Delaware corporation will file their corporate tax returns with the IRS and NYS Dept of Tax and Finance, and will have to follow essentially the same tax rules for each. Every two years, they will have to file a biennial report to the New York Secretary of State, listing the Chairman and directors, the address for process and other information. However, Company B will also pay a registered agent in Delaware to provide a registered address within the State, will file an annual report and pay a Delaware franchise tax of at least $100. Each year, the two corporations will be required to hold annual meetings of the shareholders and the directors; however the rules governing these meetings, and what is allowed to be approved and by whom will be different.

Because the laws governing these corporations are different, there will be times these differences matter. For example, after five years, both Company A and Company B have faced difficult times and are looking to close up. The shareholder of Company A, out of money and out of business, is personally liable for the unpaid wages of his employees, while the shareholder of Company B, incorporated in Delaware, is not.


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