What is a foreign state registration?
A foreign registration is when an existing entity, like an LLC or corporation, is incorporated in one state and needs to register to do business in a different state. A common example is when an entity is incorporated in Delaware but will have its headquarters and operations in another state.
The United States has a federal system, and the states still act in many ways as if they are sovereign governments. Because entity formation is handled at the state level, a business entity formed under their laws are considered “domestic,” and a business entity formed outside of its laws are considered “foreign,” regardless of whether an entity was formed under the laws of another state or another country.
For example, if you have created an LLC in Delaware and want to do business in New York, your Delaware LLC is “foreign” to New York. The process is the same whether your LLC was formed in Nevada, Canada, the UK or Singapore.
When you are registering your “foreign” entity, you are NOT creating a new entity, and your activities in that state are governed by the laws of that state (plus federal law). The rules about how your entity is owned and governed are covered by your state of incorporation, but your business activities are governed by the location where they are carried out, and you will be subject to the same taxes for activity that takes place within the new state as any entity formed there. You cannot escape local taxes by incorporating in a different state.
When is a foreign registration required?
When a corporation or LLC is formed it is automatically authorized to do business in the state in which it is incorporated. If this entity then will conduct business in a different state, it may need to file a foreign registration in that state. Situations when this kind of filing is usually made are:
- Opening an office in a different state
- Hiring remote workers or otherwise hiring staff in a new state
- Bidding on a state or local government contract in a different state
- Maintaining inventory in a warehouse in a different state
- Routinely making sales calls in a particular state
- Owning real estate in a state
Some states are more lenient than other states in how aggressively they enforce this requirement. It’s worth noting that California is particularly aggressive in this regard, but is by no means the only state like this.
How to file a foreign state registration?
Each state makes up its own laws, procedures and fees, so the name of the document to file and the cost to do so varies a lot from state to state. The name of the document to file is commonly called an Application for Authority to do Business, but there are many other variations. It is also common to be required to provide proof of existence of the entity at the time of application; this document is usually called a Certificate of Goodstanding or Certificate of Existence. Other states require a certified copy of the articles of incorporation “as amended,” meaning that they want a certified copy of any amendments to the incorporation document plus a certified copy of the document itself. At the time of filing, there is always a fee to pay, which is normally higher than the cost to incorporate in that state.
If the name of the business entity is not available in the foreign state, generally the entity will be required to provide a “fictitious name” that the business will use within that state, in order to avoid confusion with the existing entity.
In every state except New York, you will be required to appoint a registered agent to accept service of process within that state. In New York, the Secretary of State must be appointed as the statutory agent to accept service of process on behalf of every registered business entity, and the entity is required to provide a current mailing address to the Secretary of State so that any process service against the entity can be forwarded by certified mail.
The time for processing the application for authority to do business depends on the state and its backlog. Many states offer an option to expedite the process, but these costs vary as well.
After filing an application for authority to do business, the entity is now required to follow the compliance requirements for domestic entities in that state, including paying taxes to that state government. Be sure to check to check with the state’s tax authorities to see what your entity’s tax obligations are.