The Foreign Qualification Process

February 02, 2007

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When a corporation or a limited liability company (LLC) is transacting business in a state or states other than its state of formation, the company is required to foreign qualify in those states. This serves as notice to a state that the corporation or LLC, which was not formed in that state, is transacting business within its borders.

As part of the foreign qualification process, a name availability search must be conducted in the state of qualification. This helps to ensure that the name of your company is not already in use in that state by another domestic or foreign corporation or LLC, or that its name is not deceptively similar to another name already in use. If your desired name is not available, your company will be required to use an assumed name in that state.

Next, you'll have to select a registered agent to represent your entity in that state. The registered agent serves as an in-state liaison for your out-of-state business.

Then you must register for a certificate of authority in that state. The process is similar to filing articles of incorporation or articles of organization. The appropriate documents must be prepared and filed, and the appropriate state fees paid.

Each state has different requirements for the information to be included in this document. Common information includes:

Company name
Date and state of incorporation/organization
Principal or legal address of the business
Name and address of registered agent in the state of qualification
Name and addresses of officers (for corporations) or members (for LLCs)
Number of authorized shares and a listing of the different classifications of stock (for corporations)
Type of management (for LLCs)
Signature of a corporate officer, often the president (for corporations), or of a member (for LLCs)

Additional information is often required in certain states. Examples of this include:

Names and addresses of directors (for corporations)
Duration of the corporation or LLC
Number of issued shares of stock (for corporations)
Financial information, including information on assets
Specific business-purpose clause outlining the type(s) of business the company will undertake

Before granting approval for the certificate of authority, many states want to ensure your company is in "good standing" in the state of formation. In order to do this, they require submission of a certificate of good standing which states that your company has met all the necessary requirements for corporations or LLCs imposed by your state of formation. Failing to file your annual statements or failing to pay or being delinquent in paying your annual statement fees and franchise taxes could cause your company to be in bad standing with the state. Being in bad standing will most certainly cause the intended state of qualification not to grant you a certificate of authority.

The prepared certificate of authority, the certificate of good standing or certified copy of your formation documents should be submitted to the appropriate state agency and the necessary state filing fees paid. Turn-around time for receiving state approval for a foreign qualification varies greatly by state, but you should typically allow six to eight weeks. Most states will allow you to expedite the filing for an additional charge. This often reduces the turn-around time to two to four weeks.