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FOREIGN QUALIFICATION AND MULTI-STATE OPERATIONS

A business that operates in more than one state should consider whether or not the business is required to register in other states. A corporation, limited liability company, or other business entity is formed under the laws of a particular state. However, when that business operates in states outside of its home state, the business entity will often be required to qualify as a foreign business entity in those other jurisdictions. The process of qualification as a foreign business entity in a particular state is usually a simple process that requires filing an application in the foreign state, obtaining a registered agent located in the foreign state, and paying a fee. Once the business entity has been qualified in a foreign state, then the business will usually be subject to ongoing compliance requirements such as filing business reports and maintaining a registered agent in the foreign state.

The consequences of failing to register as a foreign business entity in a state where the business is operating can vary. Typical penalties include a monetary fine and a prohibition on the business filing any lawsuits in the foreign state. However, not all activity that a business may engage in will require the business to register as a foreign entity. What constitutes “doing business” in a state varies from state to state. Most state laws do not define what does constitute doing business in the state, but often provide a list of what does not constitute doing business in the state. Excluded activities typically describe maintaining a bank account, soliciting orders that require acceptance outside the state, or engaging in an isolated transaction, as types of activities that do not require foreign qualification.

Determining whether or not a business is required to register in another state is a very fact-sensitive and state-specific analysis. However, businesses with multi-state operations should engage in this analysis in order to avoid the negative impacts that can come with failing to register when registration is required.