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What Is Foreign Entity Registration and What Do I Need to Know about It?

Foreign entity registration is confusing for many people at first. This is because, although the term includes the word "foreign," it does not really have anything to do with conducting business in other countries. If you are considering foreign entity registration for your business, it is important to know exactly what it is, how your business can benefit from it, and what you can expect through the process. Also, you will want to make sure that you are conducting your business legally and have as much protection as possible so you do not risk losing it or causing a lot of damage to your personal finances in the process. This article can help you determine whether or not it is right for your company while also helping you determine if your business is eligible for foreign entity registration.

What Is Foreign Entity Registration?

When you formed your business, you had to do so in a specific state. By going through the process in that state, you are granted the protections provided by the state and are allowed to represent yourself in their jurisdiction. The state in which you chose to form your business is known as your home or domestic state. If you are interested in conducting business in other states and want to have the same types of protection as your home state, then you must register in that specific state to do so. That is where foreign entity registration comes into the picture and it is the way you will ensure that you are legally set up to work in the new state, although your company will still be considered foreign by nature.

Foreign entity registration is the process of registering your business in one state to do business in another state. The only state that your business is not foreign to is the original state you registered your business in. You remain foreign in all other states by virtue of the fact that your business has been formed and complies with the rules of another state. Due to this, it is not a requirement to complete foreign entity registration to do business in another state, but there are benefits of doing so. To determine if you really need to pursue this type of registration, you may need to look at what the definition of "doing business" in another state actually is and if it applies or will apply to your business in the near future. There are many different factors that are taken into account when determining if you need to have a foreign qualification in that state, but there are some basic questions you can answer to make a broad determination:

  • Do you have at least one or more employees in another state?
  • Do you have a physical presence in another state?
  • Do you take orders in another state?
  • Do you have a business bank account in another state?
  • Does your business own any property or real estate in another state?
  • Do you earn revenue in another state?
  • Do you pay taxes in another state?

If you answered "yes" to any of these questions, then you are conducting business in a state that is not your home state and you are therefore a foreign business in that state. However, if you are selling products to people in another state but are still conducting business in your home state, then that does not qualify because the business aspect is being completed in your home state. Mailing your merchandise to another state does not automatically equate to doing business there.

What Is the General Registering Procedure?

There are many steps involved when registering as a foreign entity and it can vary depending on the state you are working with; however, many of them are similar and will follow the general procedure. The first part of the process to ensure that your business qualifies is to conduct a name availability search in that state. During this process, you will ensure that the name of your business is not currently being used in that state by another company.

Also, during this search you can check for any names that are similar to your company's name. You will want to do this so that you can prevent any confusion from the people who are currently living in that state that are likely already familiar with companies already existing there. Since the other companies are already established there, you would have a great disadvantage when trying to make the distinction with the public. Additionally, this can protect you from any issues with those companies later on because you have done your due diligence to ensure there are no name violations. If you do find that the name of your company or the name that you were wanting to use is not available, then you will be required to use an assumed or a fictitious name in that state in order to continue with the process.

The second part of the process is selecting a registered agent to represent the business in that state. This is important because this individual will be the in-state liaison for your business that is out of that state. This individual will be responsible for accepting all service of process documents and any official state communications. These include wage garnishments for your employees, tax documents, and more. While you can definitely have someone move to the state from your company, this is not necessary; there is a professional service provided in many states that can help you choose a registered agent. Since they are essentially mail receivers on your behalf, you really only need someone who will be reliable with this task and will forward any mail to you promptly so you can handle it in a timely manner.

Once you have completed these two steps, you can then register in the state. To do this, you will need to apply for a certificate of authority in the state. You should follow the instructions for the application that are provided by that specific state because they can differ from state to state. Overall, the process is very similar to that of filing articles of incorporation. To do this, you will need to submit the documents required by that state as well as any state fees.

What are the General Requirements for Registering?

The requirements for registering are different in every state. You will need to check with the specific state you are looking to register in so you can make sure that you are following proper protocol and providing complete documentation as required. However, most states have a lot of similarities and these are some of the common things you will find. When preparing your paperwork, some of the information you can be prepared to submit includes:

  • company name/legally registered name in your home state as well as any other name for this state (if needed);
  • date and state of incorporation/organization of the business;
  • principal or legal address of the business in the home state and their state;
  • names and addresses of officers (for corporations) or members (for LLCs) in all states;
  • names and address of the registered agent in the state of qualification;
  • number of authorized shares and a listing of the different classifications of stock (for corporations), if applicable;
  • signature of a corporate officer, often the president (for corporations) or a member (for LLCs), for the application; and
  • type of management (for LLCs).

Some states may require some additional information. Some items that you may have to detail include:

  • duration of the corporation or LLC;
  • names and addresses of directors (for corporations);
  • various financial information, including information on assets;
  • number of issued shares of stock (for corporations) and when and how they were issued;
  • specific business-purpose clauses outlining the type(s) of business the company will undertake; and
  • any other supporting documentation for your specific business.

Many states will take the time to ensure that your business is in good standing in your original state of formation. This can take some time because they will require that you get a certificate of good standing from the state. This certificate will detail that your company has met all of the requirements that their state has imposed for your corporation or LLC. You may also be required to provide a copy of all of your formation documents from that state as well as any amendments that you have had over time.

There are a few things that could result in your business being in bad standing with your home state. Some examples of this would be failing to pay or being late paying your annual fees, failing to pay or paying your franchise fees late, or even failing to file your annual statements. You will want to make sure you have done all of these things correctly and on time so you can remain in good standing. This is important because if the state in which you are applying for the foreign entity sees you are not in good standing with your home state, they will more than likely deny your request.

Once you have everything in place, you can submit your certificate of good standing and a certified copy of your formation documents to the state agency. You will also need to pay the required state filing fees. The amount of time you will wait for a decision will vary depending on the state. In most cases, you can expect to wait anywhere from six to eight weeks unless you have been told otherwise.

Expedited Filing

You may also be allowed to expedite the filing for an additional fee and that may reduce your wait time from anywhere between two to four weeks.

What Can Happen If You Fail to Register?

You will need to pay some money to complete the foreign entity registration, but you will also find that you will have to pay different filing fees and go by the state laws in place. This could mean more fees for you on a yearly basis as well as reporting fees every year. This may seem like a lot to deal with just to do business in another state, but if you continue to do business there and fail to register, it could cost you a lot more in the long run and could have an impact on your business as a whole. There are a few major legal consequences you may face if you fail to register. The first thing you will lose is the right to bring a lawsuit to the state court or to defend any claims against your company. While this may not seem like a big deal now, it essentially means that if a person or another business fails to abide by a contract, you will have no way of enforcing it or suing to try to recover damages. If you choose to register after the fact, you may be able to follow up with the lawsuit through the state, but you will lose time in the process and you may even lose your ability to sue someone if the state laws prevent you from filing a lawsuit within a set number of days.

Next, if a lawsuit is brought against your business, you may still be able to defend yourself in most cases, but you may not be able to use specific defenses. You also may not get notice of a lawsuit until after it has been completed and a judgment has been made against you simply because you were not registered in that state. Additionally, you may still be subject to fines, back taxes, and even penalties for the time spent conducting business in that state and not being registered. Once it has been discovered, the state will want to recover these things for simply not registering to conduct business in their state. Lastly, you will stand the chance of losing your limited liability status. This will put you as an individual, and will put your business at risk.