Foreign Entity: Everything You Need to Know
Registering as a foreign entity may be confusing at first. This is mainly because the word "foreign" is used.3 min read
Registering as a foreign entity may be confusing at first. This is mainly because the word "foreign" is used. The term foreign does not imply that you're doing business in another country, it means your company is conducting business outside of the state in which it is incorporated.
What Is Foreign Entity Registration?
If you do business in one state and are incorporated in another state than you'll most likely need to register your company as a foreign corporation, or foreign entity, in the other state. This type of filing is known as a foreign filing and can be completed at the state's Secretary of State website.
If you're considering registering your business as a foreign entity, it's important to:
- Know what it is and what it means
- Determine if your business will benefit from it
- Recognize what you may expect from the process
The main reason businesses register as a foreign entity is to make sure that they're doing business legally. Registering helps to prevent any future liabilities from causing massive devastation to their finances. When you initially registered your business, you were granted protection (by the state) and were allowed to represent yourself in that state.
The state that your business was formed in is known as your domestic or home state. If you're thinking about doing business in another state, and you'd like to have similar protections (as in your home state), then registering as a foreign entity is a must. Additionally, this will ensure that you're legally operating as a foreign entity in the new state.
There are a variety of factors that a business owner needs to analyze to determine if they need to register as a foreign entity. If you have business activity occurring in a foreign state, consider the following questions:
- Do you have employees?
- Is there a physical presence?
- Are orders being taken?
- Is there a bank account?
- Does the business own real estate or property?
- Are you earning revenue?
- Are you paying taxes?
If you answered "yes" to any of the above questions, then you should be registered as a foreign entity in the applicable state(s).
Keep in mind, if you're merely selling merchandise or products to individuals that live in another state, and you're only doing business in your home state, then that doesn't qualify your business as a foreign entity. Simply mailing products to another state does not meet the threshold.
Isn't the Term "Foreign Entity" Reserved for Non-U.S. Entities?
A foreign entity can be used at both the state and federal levels. At the federal level, the IRS uses this term to refer to non-U.S. business entities. Once again, at the state level, it's referring to an LLC or corporation that's doing business outside of their home state's territory.
Who Should Apply for Foreign Entity?
Generally, if a company is only processing a few transactions in another state there is no need to register as a foreign entity. If a company is planning on expanding into another state or acquiring real estate or other assets, then it should become a foreign entity. To become a foreign entity in another state, the company should file a Registration of Foreign Corporation/LLC or Foreign Entity Qualification form. Receiving a foreign entity status from the state you're doing business in will allow your organization to receive the same benefits as a domestic business.
What Is the General Registering Procedure?
The procedures to register vary by state, but many are similar and follow two main steps:
- Execute a name availability search to find out if your business name is taken
- Make sure to see if any other companies exist that have a similar name to avoid confusion
- If the name is currently being used then you'll need to create a fictitious one in order to complete the process
- Select a registered agent to represent the company
Once these two steps have been completed, you may then register as a foreign entity. Applying for a Certificate of Authority with the state will make your company an approved foreign entity.
If you need help determining if your business should become a foreign entity, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.