It is pretty strange that we don’t have a way of registering businesses to operate nationally, particularly in the age of online commerce. We don’t though; it’s state-by-state. If your business was organized under the laws of one state but you operate in another, you will have to register it as a foreign corporation where you actually do business. “Foreign,” in this context, means from another state and from another country. The rules that define “doing business” also vary with location.
Think about this if you automatically assumed you should incorporate in some historically business-friendly state regardless of where you actually intend to do business. If you incorporated in Delaware and sell widgets in New York, Texas and California, you will have to register as an out-of-state entity in each of those places. You may also have to register a trade name, and there may be additional filings for taxes, insurance and professional licensing. Trademark protection is a separate concern. It’s a picky process, so our best advice is to get some professional help.
Registration in New York
A foreign business corporation may apply to do business in New York State by filing an Application for Authority. The Business Corporation Law, rather unhelpfully, defines “doing business” by listing what it does not mean. We know, for example, that it does not include holding meetings of owners or managers, maintaining bank accounts, and defending legal actions. It would be safe to assume that the idea of “doing business” does mean any other permanent and continuous activity that is essential to the business. The issue may be particularly fuzzy for an online business. Sales and marketing through an interactive web site are likely enough to require registration. If you have been operating in New York without filing an Application for Authority, you must obtain the consent of the New York State Tax Commission before you may do so.
Registration in Texas
If your organization was formed, and its internal affairs are governed by the laws of a state other than Texas, it is similarly a “foreign entity.” The Texas Business Organizations Code requires a wide variety of business entities to file an application for registration if they transact business within Texas. As a practical matter, because the threshold level of activity for having to pay business taxes is lower than the threshold for having to register as a foreign entity, many organizations begin the process by filling out the Comptroller’s Texas Nexus Questionnaire. If the result is “no nexus,” then it is clear that your organization does not have to register as a foreign organization, either. If the result indicates a nexus for tax purposes, then registration as a foreign entity is likely also required. Even if you determine that your entity is not transacting business in Texas under the BOC, you may need to register under other law, such as the Insurance or Finance Codes.
Registration in California
Before transacting intrastate business in California, an out-of-state entity must register with the California Secretary of State. The California Corporations Code defines “transacting intrastate business” as entering into repeated and successive transactions other than interstate or foreign commerce. Corporations, LLCs, limited partnerships and limited liability partnerships file different forms, but all must be accompanied by a certificate of good standing from the home state. The Secretary of State’s Office notes that many forms are returned for errors and provides helpful tips for filers.
Fees and paperwork were probably not what you had in mind when you started your business. It is a necessary part of creating and protecting your business identity, however. Particularly through the first few years that identity may be among your most valuable assets. Once you get through the preliminary set-up work, it should not be something you have to think about too much.
