September 19, 2022

How to file for foreign qualification when expanding to new states

With Firstbase since:

In many places, you can incorporate your company once and then freely do business throughout the entire country. Unfortunately, that isn’t the case in the United States. US businesses have to file for foreign qualification every time they expand to new states.

Foreign qualification rules can be extremely confusing, and even seemingly small compliance issues can lead to big consequences. In this article, we’ll explain the basics of foreign qualification and help you keep your business fully compliant with all state regulations.

What is foreign qualification?

Foreign qualification is the process of registering to do business in a state other than the state in which your company is incorporated. For example, if your business operates in Delaware and is also incorporated there, you will need to file a foreign qualification in order to start operating in another state.

The advantage of foreign qualification is that you can register your existing business instead of forming a new entity in each state. This is the much simpler and more affordable way to expand across state lines.

Every state mandates foreign qualification so they can manage business reporting and tax requirements. Foreign qualification is sometimes known by other names. For example, the New York State government requires out-of-state businesses to apply for a Certificate of Authority, which is equivalent to foreign qualification in other states.

Furthermore, each state’s rules are slightly different. For example, Hawaii allows foreign qualification for less than $80, while Idaho charges a state fee of $255 to foreign qualify there. Click here to learn more about the different requirements and filing options in each state.

When do I have to foreign qualify in another state?

One of the most common questions we receive is whether businesses can operate in a state without filing for foreign qualification there. Unfortunately, this isn’t always clear, especially since different states have different rules about what exactly counts as “operation.”

In general, you should file foreign qualification if you find yourself in any of the following situations:

  • You want to hire an employee who lives in another state
  • You want to buy an office, storefront, or other physical property for your business in another state
  • You want to receive a professional license in another state state
  • You want to sell products or services in another state

On the other hand, these circumstances are less likely to require foreign qualification:

  • Performing an isolated transaction (e.g. buying from another supplier in a pinch)
  • Opening or maintaining a bank account
  • Holding corporate meetings without ongoing operations in that state

These regulations can be tough to keep track of, especially if you start operating in a number of different states. Don’t hesitate to contact our team if you have any questions about how foreign qualification rules apply to your business.

What if I don’t file for foreign qualification?

Similarly, the consequences of doing business without foreign qualification depend on the state in question. California, for example, charges a $20 fee every day a business operates without a valid certificate from the Secretary of State. The state can also prosecute companies for willful non-compliance with penalties determined on a case-by-case basis.

Furthermore, California and many other states prevent businesses from bringing lawsuits in the jurisdiction until they become compliant. You may get a chance to do so before filing suit, but you don’t want to have to be at the mercy of the state government. Don’t risk late fees, legal issues, or other penalties by failing to meet the foreign qualification requirements.

How to file for foreign qualification

You won’t be able to do business in a new state until your foreign qualification is approved. With that in mind, it’s a good idea to start the process as soon as you think it might be necessary.

When you file for foreign qualification, you will also need to designate an individual to serve as your registered agent in that state. Firstbase Agent can provide a registered agent for your business and handle all foreign qualification paperwork in all 50 states.

Most states charge a fee for foreign qualification. Some states also require specific documents, such as a certificate of good standing from your home state. 

Each state has its own rules, but there are four steps that you should expect in every state:

  1. See if the state you’d like to register in requires a certificate of good standing from the state where your business is incorporated.
  2. Appoint a registered agent in the new state.
  3. Complete the foreign qualification application.
  4. Deliver the certificate of good standing, application, and fees to the filing office.

Some states offer expedited service for faster processing. The extra charge for expedited processing will sting, but it could be worth the money if it allows you to start operating more quickly.

Expanding to a new state? File for foreign qualification

Foreign qualification is a confusing area for business owners, especially those outside the US. While it might be a pain to register in multiple states, there’s no getting around state regulations. If you want to operate throughout the entire country, you should expect to file 49 foreign qualifications.

Fortunately, Firstbase Agent takes the headache out of foreign qualification by taking care of the application and filing process for you. We also provide registered agents in all 50 states. Click the link below to learn more and begin the foreign qualification process.

Complete your foreign qualification

Get started with Firstbase

Start, grow, and manage your business. We're with you each step of the way.