Qualification: The Tricky Business of Doing Business in Foreign States

Qualification: The Tricky Business of Doing Business in Foreign States

June 3, 2014

Your catering business is growing. You decide to buy a delivery truck. You look around for the best deal and find the perfect vehicle for sale three states away. Chances are good you’ve never wondered whether you have to qualify to do business in that state just to buy a truck there. You probably don’t, because the purchase is an isolated transaction and you aren’t planning on doing additional business in that state.

Still, certain circumstances could warrant qualification. For example, if the terms of the sale extend beyond 30 days, you may be required to qualify in some states. If you don’t, and something goes wrong with the transaction, you may not be able to address the issue in the courts of the state where you bought the truck.

To protect your company, it’s wise to keep qualification in mind whenever you’re doing business outside your home state, no matter how isolated or minor the transaction. 

In order to conduct business legally in a “foreign” state (any state other than your state of formation), you must first “qualify” to do business there by filing with the Secretary of State’s office or its equivalent and paying a fee. In order to maintain good standing in that state, you’ll need to file an annual report and may also be required to pay franchise or income taxes.

So how do you determine whether you need to qualify to do business in foreign states? It’s a complex and time-consuming process, and even finding comprehensive and up-to-date information about qualification can be a chore. Moreover, making the wrong decision can leave you unable to protect your company in a legal dispute and can lead to monetary penalties and even jail time for officers and directors.

Over the years, the customer service representatives at Corporation Service Company have taken many queries from business owners and legal professionals about the rules and procedures for qualification, which prompted us to develop a comprehensive resource on the topic: Guide to Doing Business Outside of Your State: The CSC 50-State Qualification Handbook. This easy-to-read resource provides you with the information you need to make important decisions about qualifying in states where you plan to do business. The book includes many case studies that can help you understand which types of business activities trigger the qualification requirement in the states where you plan to do business.

The book first looks at the Model Business Corporation Act (MBCA), which serves as a template for most states’ laws governing foreign corporations’ business activities within their borders. The Act, developed by the American Bar Association in 1946, was written in a uniform law format to make it easier for state legislators to adopt. The Act was overhauled in 1984, and today most states have enacted part or all of its provisions.

The book then examines the activities listed in the MBCA that are not subject to regulation, and those activities which will require a foreign corporation to register to do business. Both types of activities are illustrated with relevant case law and are also summarized in an easy-to-use chart that lists the activities that do not constitute doing business. There are also detailed discussions of the consequences of failing to qualify and suggested remedies for qualification failures.

You will find a chapter devoted to how corporate Internet and e-commerce activity could trigger qualification requirements. Because there is little specific case law regarding qualification and ecommerce activities, the book looks at corporations’ Internet activity in the context of personal jurisdiction.

The book provides detailed instructions for qualifying to do business in foreign states, as well as an appendix with contact information for each of the 50 states and URLs to each state’s division of corporations web page and a companion CD-ROM that contains the qualification forms for each state in fillable PDF format. There is even a chapter that focuses on the qualifying and registration procedures for charitable organizations, as well as the forms needed to register a nonprofit.

The Qualification Handbook also includes an extensive collection of annotated business statutes from all 50 states and the District of Columbia, which provides readers with easy access to the current statutes and relevant case notes that relate to doing business in a foreign state.

The book is updated each year with new case illustrations and legislative changes to ensure that you are working with the most up-to-date information available

Guide to Doing Business Outside Your State: The CSC 50-State Qualification Handbook contains the analysis and case illustrations, charts, annotated statutes, and forms library that business owners and legal professionals need to come up to speed quickly on whether and how to qualify to do business. It is available as a softbound book or in eBook formats for iPad, Kindle, and other tablets and mobile devices. To order your copy, click here.