Foreign Qualification

The word “foreign” can sometimes cause confusion here. Many business owners misinterpret it to mean business outside the United States, when actually it simply refers to a U.S. state in which a particular company is not based.

As your business grows, you may want to begin doing business in other states – and that means you will probably need to go through the process needed for your business's foreign qualification in those states.

The first step in securing foreign qualification involves gaining a certificate of authority or the certificate of goods standing. In addition to this, you need to pay the necessary state fees. You may have to pay fees and taxes both in the state of formation and in the state of qualification.

• The company's physical presence in the state.
• The presence of employees in the state.
• The company's accepting of orders in the state.
• The presence of a valid bank account in the state.

Different states have various criteria that need to be fulfilled before requiring foreign qualification, and it's important to consult your attorney and tax adviser regarding all the requirements.

What happens if you don't apply for foreign qualifications for your business? You may not be able to defend the lawsuit in the state's court system if your company has not foreign qualified in that state. Your company may also incur additional taxes, penalties, and fines for not notifying filing the qualification.