When a company grows and begins to transact business in more than one state, its paperwork procedures can become much more complicated. Filing as a foreign corporation helps keep these hassles to a minimum.
Foreign qualifying has nothing to do with a foreign country. It simply means that the company is registering to do business in a state in which it isn''t a domestic entity. Doing business can mean any number of things. Filing is generally required if the company has a physical presence, has employees, takes orders or has a bank account in the state.
While filing creates additional costs and reporting requirements, failing to do so means that the business isn''t recognized by the state, and wouldn''t be able to defend itself in a lawsuit until it made the foreign filing declaration.
Companies can also take advantage of business-friendly tax laws. A business can incorporate in Delaware, and then file as a foreign entity in each other state that it does business.
The only alternative to filing a foreign qualification is to incorporate the company in each state in which it does business - making it a domestic entity in every state. But having a number of different incorporations in different states can create several reporting requirements that make this option less appealing to business owners.
Tags : c corp, llc, lp, qualification, s corp
Posted: Aug 13th, 2010