Do I need to register my business in another state?

By Attorney Edward Jesson

A question we frequently get from business owners, small and large alike, is whether they need to register their business in other states. The answer is, as usual, “it depends.” The process of registering your business in another state is often referred to as “Foreign Qualification”. While the laws vary from state to state, the following is a very general guide to whether you need to go through the foreign qualification process for your business.
First of all, depending on the state, there can be serious ramifications for not registering your business in a specific state in which you are doing business. These can range from financial penalties to losing your business’s limited liability status, exposing you, as the individual owner, to liability in that state. In some states, it can also mean that, if your business is not properly qualified to do business in that state, your business is not permitted to bring legal action in that state. For example, if your business wished to enforce a contract in court in a state in where your business is not properly registered, your business may not be able to bring that lawsuit.

To determine whether you need to go through the foreign qualification process, the important question you must ask yourself is whether your business is “doing business” in that state. Again, the rules on this from state to state vary, but there are some general things to look out for when asking yourself that question:

• Does your business have a physical presence or employees in that state?
• Do you frequently conduct in person meetings with clients in that state?
• Does a significant portion of your business’s revenue come from that state?
  
  

Some examples of things that would not typically require you to go through the foreign qualification process are:

• Taking online orders from another state;
• Sales generated by independent contractors in that other state; or,
• Holding annual corporate or member/manager meetings in that other state.
  
  

Unfortunately, the list above is not exhaustive and there are many different definitions of “doing business” depending on the foreign state. However, it is important to note that, despite the differing rules, it is important for your business to research the state requirements and follow those rules when transacting business in that state.

If you have questions about doing business with your LLC or corporation in another state, the attorneys at Jesson & Rains can assist you.