Why and how would you set up a foreign corp doing business in another state?
In this audio snippet, you'll hear about:
- Generally the procedures vary from state to state
- The best resource is to look at the secretary of state web site for that particular state
- Must obtain a certificate of good standing from entity state, which the foreign state reviews
- Must fill out a form, and submit with filing fee
- There is a yearly tax
- There are high risks for not filing as a foreign corp properly
Audio Transcript
Travis:
Why, and how would you set up a Foreign Corp doing business in
another state?
Yosef:
Well, again, generally the procedures that a Foreign Corporation would
use to set up in a particular state, are going to vary from state to
state. The best resource to find out what a particular state requires,
would be to look at the Secretary of State's website for that
particular state.
Travis:
OK.
Yosef:
Generally however, the Foreign Corporation will have to obtain what's
called a "Certificate of Good Standing" from the state of
incorporation, which the new state will actually leave you before
allowing a Foreign Corporation to operate.
Travis:
OK.
Yosef:
And actually today it's pretty simple to get a Certificate of Good
Standing if, in fact, your corporation is in good standing. A state
like Florida, a state like Nevada, they actually allow you to get the
Certificates of Good Standing online. A state like New York actually
will allow you to fax in the request, and they've actually been pretty
quick on accommodating such requests. So, it's actually pretty simple
today to actually get the Certificate of Good Standing.
Once
you have that certificate, then you have to fill out, generally it's a
short form with a particular state. There's a filing fee of course, and
then you can submit it. And each state will typically in a matter of
days, or weeks, depending on whether you expedite the request or not,
grant that authorization to do business in that particular state.
Travis:
So, to get started somebody would just go to Google, and type in their
state, and Secretary of – what was the website that you said?
Yosef:
Well, most every state in the United States has a division called the
"Secretary of State." Now, that's not entirely true for all 50 states,
but if you do type in the name of the state, as well as the word
Secretary of State in Google, it will probably lead you very quickly to
the right website.
Travis:
OK. Now, why would somebody need to set up a Foreign Corp? I mean, you
have an Incorporation, let's say you got a Nevada Incorporation, and
you want to go into business in Colorado?
Yosef:
Great question.
Travis:
OK.
Yosef:
The answer is that each state governs its own operations and businesses
of that state. So if you are an individual, you can do business where
ever you want. But to get the privileges of conducting yourself or your
business as a corporation, you have to abide by the laws of that state.
Every state wants to ensure that any corporation within that state is
actually abiding by its particular code for corporations. So, in order
to make sure that each corporation is doing what it is supposed to,
they have to inform the state that they are actually there and that
they are proactive and willing to abide by whatever that particular
state corporation code requires of it.
There
is also an additional reason which is very practical and pragmatic that
is that most states that you operate in are going to expect a minimum
franchise tax.
Travis:
Hmm.
Yosef:
Corporate tax, which again is a great source of revenue for each state.
Some states don't have that but most actually do. So the state actually
wants you to file so they can actually get you to pay that tax.
But,
I think, there is an even more important consideration that you have to
keep in mind and this has happened to a number of business clients of
mine over the years. That is that often if you, as a corporation,
engage in business in a state that you are not authorized to operate in
and then somebody does not pay their bill to you and you try to proceed
after them to collect your money, they can walk into court and say,
'Your honor. This corporation was never authorized to do business in
this state and I don't owe them any money.'
Travis:
Wow. So it's both in the state's best interest and your own best interest to make sure that this is properly set up.
Yosef:
Oh, absolutely. Absolutely.
Travis:
OK. Great.
Yosef:
It is very short sited for clients to think that they can actually do
business in a state without registering with the state. They think they
can get away with it all. It just doesn't work. It is a very simple and
inexpensive prop lactic measure to register with the state and do this
properly.
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