If your company is doing business in a state other than the one in which you incorporated or formed your company, you are required to register or “qualify” as a foreign entity in that state.
As each state has its own rules on what constitutes “doing business,” it is important to know whether your company is required to foreign qualify. Generally, foreign qualification is required when your company has a physical location, employees, regular client meetings, a substantial revenue stream, or regularly enters into contracts within another state.
What happens if you don’t qualify as a foreign entity? States can assess fines, interest, and require back taxes for the time a company has conducted business without foreign qualification, sometimes even fining individual officers or agents. States can also prohibit a non-compliant company from bringing or maintaining a lawsuit in their courts. Failure to qualify can also impact a company’s image and liability, giving prospective buyers leverage to reduce an offer price or withdraw an offer altogether.
Don’t risk the penalties of failing to foreign qualify. Our team can help you determine the foreign qualification requirements for your business and help you work towards becoming compliant if you have not yet qualified.
This post was written by Simone Senior