Once a business determines it is “doing business” in another state and would be required to register with that states regulatory authority, the next step is to actually register. If you need help determining if your business needs to register to transact business in another state, Apex’s blog on conducting business in another state may help.
Common Requirements for Registration
The registration process across states is relatively uniform. While each state requires similar procedural steps, the specific information requested by the states can vary. Regardless, registering to do business follows a similar process in each jurisdiction and there are three parts to registering that all states have in common. The most common steps are: verifying good standing in your home jurisdiction, applying to form an entity in the foreign jurisdiction, and obtaining a registered agent in the foreign jurisdiction
Every state will ask the following when a foreign entity seeks to register to do business in its jurisdiction:
- Certificate of Good Standing. The foreign filing entity will be required to submit a Certificate of Good Standing issued by the Washington Secretary of State to show that your business is in good standing with its home jurisdiction. Typically Certificates of Good Standing are effective for six months after issuing. Meaning one Certificate of Formation can be used to submit to every state where you wish to be registered, so long as it occurs within six months. The Washington Secretary of State charges $20 for a Certificate and this can be requested online from the WA Secretary of State.
- Application. The foreign filing entity will be required to submit an Application for Authority to Transact Business (sometimes called a Certificate of Registration or something similar) to apply to the state. This form includes basic information about the company like address, contact information, owners, and registered agent in the state, and sometimes request information on revenue and employees.
It is important to note that some states require a filing entity to provide more information than others, and have different policies on how that information is disclosed to the public. So be aware that you may be disclosing private information that will be revealed to the public.
- Registered Agent. The foreign filing entity will be required to maintain a registered agent with a physical address in each state it seeks to be registered. Companies offer registered agent services on a commercial scale and charge a yearly fee for the registered agent service (see below).
Fees for Registration
All states charge a base fee for registering. Typically, these fees are in the $100 to $200 range, with the exception of Texas and South Dakota which charge upwards of $700 for registration. Additionally, some states charge additional fees based on the number of employees, officers, or agents of the entity.
There are also fees for registered agent services, which your business will be required to have. Typically also ranging from the $100 to $200, these fees are due yearly to the registered agent. Commercial agencies like Cogency Global and Northwest Registered Agent offer these services comprehensively across the United States.
Looking to the future, each year or every other year, your company will be required to file an Annual Report (sometimes called a Certificate of Continued Existence or something similar) and pay a fee (sometimes called a franchise tax or something similar). The entity is charged a nominal fee for the filing of the report.
Other Registrations May be Required
Doing business for the purposes of registering with the state regulatory authority is different from doing business for the purposes of having to pay taxes. Typically, though not always, the threshold for “doing business” for registering with the state’s regulatory authority is a stricter definition to meet. Meaning a foreign entity who must register to do business with the state’s regulatory authority, as described above, likely also must register and pay taxes with the state’s tax authority, and is subject to service or process in that state. A CPA should be consulted concerning the tax implications of registering to do business.
What Happens When You Don’t Register?
All states have penalties for businesses who are found to be conducting business without registering. Not all these penalties are monetary, but all can have a monetary impact.
Primarily, all states have codified that a business may not initiate or maintain an action or proceeding in that state’s court if an entity is not registered to do business. This is referred to as a “door closing” provision whereby the states “close the courthouse doors” to foreign entities because the state doesn’t think a foreign company should benefit from the aid of a state’s courts in enforcing its rights if it is not properly registered. This means a business will not be allowed to bring suit in that state, and will have any cause-of-action brought to that jurisdictions court dismissed in favor of the other party. This can be particularly harmful as state statutes commonly have provisions ensuring that the failure of a foreign entity to register to do business does not impair the validity of a contract or preclude it from defending an action or proceeding in the state. This could result in a situation whereby your company is dragged across state lines to defend a contract with no ability to seek recourse of your own.
In many states a foreign entity who fails to qualify is also subject to monetary penalties. These penalties typically require the entity to pay amounts equal to all fees which would have been imposed upon that company had the company duly registered. In addition, some states will retroactively apply a fee on a per day, per month, or per year basis with no limit. Meaning companies that fail to register could face large fines in states in which it has operated for a length of time without registering. In some cases, a state may require cessation of all business activity in the state until it has become compliant with the statute.
In all cases, the penalty to noncompliance exceeds the cost of complying with the law and registering to do business.
This blog is for educational purposes only and does not constitute legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. Speak to a licensed attorney if you need help or advice in how your organization should be managing state registrations. If you have any questions or would like to learn more, please contact Coleman Scroggins at Coleman@apexlg.com or visit our website.