How to Expand a Business to Another State
The basics of how to expand a business to another state include filing for a foreign entity qualification.3 min read
2. Applying for Your Foreign Qualification
3. Tips for Expanding into Another State
Updated November 23, 2020:
The basics of how to expand a business to another state include filing for a foreign entity qualification. Once you receive this qualification and are approved to do business in the new state, you can acquire a business address, hire a workforce, and complete any other tasks you need to get your company up and running.
Doing Business in Another State
When your business operates in a state, it usually means the following:
- You own a bank account within the state.
- You are selling your goods in the state, usually through a sales representative or distributor.
- Your business has purchased a property in the area.
- Your business holds meetings, has offices or maintains facilities in the state.
If you want to do business in a state other than your home state, you will usually need to apply for a foreign qualification or receive permission to do business in the state. A foreign qualification means that you are operating a business in a state other than the state where your business was incorporated. This term can be used both for limited liability companies (LLCs) and corporations.
If you form your business in one state but decide to do business in another, the latter state will require that your company qualify as a foreign entity before operations can begin. Although there can be some minor differences, especially in terms of what they are called, each state uses similar foreign qualification paperwork.
Some states call this document a foreign qualification application, while others use the term Statement and Designation. The paperwork that you file to apply for your foreign qualification will be very similar to the Articles of Incorporation that you used to form your company.
Your foreign qualification application will need to include important information about your business:
- The company name.
- The state where your business is incorporated.
- Company stock information, including how many shareholders you have.
- A list of the officers in your company.
- The name of your Registered Agent
- The principal office address you will use in the new state.
Before your foreign qualification is approved, you will likely need to present a Certificate of Good Standing from your home state. This document shows that your company is active and has complied with all regulations in your home state. If you find that your company is not currently active, the likely cause is that you have failed to meet annual filing requirements. You should be able to restore your good standing by filing the correct documents and paying any required fees.
Applying for Your Foreign Qualification
There are several issues that you should consider when you're preparing to file your foreign qualification application:
- Your budget.
- The time you have to complete the application
- How comfortable you are handling legal forms.
One option for obtaining your foreign qualification is filing directly with the Secretary of State in the state where you want to do business. On the other hand, if you're not sure about the requirements for foreign qualifications, and you can cover the expense, you may want to get help from an experienced corporate attorney. A knowledgeable lawyer should be able to help you complete your application and make sure you have met all filing requirements.
However you decide to file your application, you should be certain that you're taking seriously the legal obligations of expanding your business into another state. Filing yourself is usually the simplest, most affordable option. When you register as a foreign entity, you should remember that your original LLC still exists in your home state. You are simply creating a foreign LLC, not ending your original LLC.
Having the ability to register as a foreign entity means you can incorporate your LLC in a state with more business-friendly regulations while doing business in another state.
Tips for Expanding into Another State
If you're planning to expand your company into another state, you should spend some time thinking about the scalability of your business model. If you take the time to plan out your expansion, your new business venture is more likely to succeed.
With the right type of planning, you should experience gains very rapidly. No matter what type of business you're running, you need to know why you're expanding and whether the new location can support the expansion. For example, a business model that works for 20 employees may not fit a company with 200 employees.
If you need help with how to expand a business to another state, you can post your legal needs 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.