Qualified Foreign Corporation: Everything You Need to Know
When conducting business in a state different from the original incorporated state, a business must qualify as a foreign business.3 min read
Becoming a qualified foreign corporation is advantageous for several reasons. When conducting business in a state different from the original incorporated state, a business must qualify as a foreign business. For example, a business incorporated in the state of Kentucky would need to qualify or register to do business in Tennessee. The business would be considered a foreign corporation in Tennessee.
Knowing How to Become a Qualified Foreign Corporation
The filing process to qualify or register as a foreign corporation will vary by state. It is suggested to always check with the Secretary of State to ensure you are compliant with the state laws. Almost all states require you to fill out a Statement and Designation by Foreign Corporation form. In some states, you will need to provide a Foreign Corporation Certificate.
These forms will request that you provide the name of the corporation wishing to conduct business in the new state. It will also ask you to identify the original state of incorporation and the address of the principal office in the original state.
Does a Foreign Business Need a Registered Agent?
In addition, for contact reasons, the name and address of a registered agent or corporation living in the new state must be listed as well. State laws will vary on registered agents. The corporate officer must sign the form. The filing fee for registering will vary from state to state as well.
Is a Certificate of Good Standing Needed?
In addition to the previously mentioned forms, many states require a Certificate of Good Standing to be filed by the foreign corporation. This form may be referred to as Certificate of Authorization. As part of the registration process, many states will ask the foreign corporation to provide a list of assets and liabilities in both the original state of incorporation and the new state in which it wishes to do business.
Because states have so many different laws, it is a good idea to consult with an accountant or attorney to fully understand the tax responsibilities and registration requirements. A professional attorney who has experience in helping businesses achieve foreign corporation qualification will be able to walk you through the entire process. This proves to be of the utmost benefit when you are trying to become a foreign business in the least amount of time as possible.
How to Determine If You Need to Register as a Foreign Business
States will have various interpretations in regards to what is considered a business transaction. With that being said, some forms of business may not require registering as a foreign corporation. This can be seen in companies like Amazon. The company sells items online and ships the items to various states. Since Amazon does not have a physical location in many of the states they ship to, they are not required to register the corporation in every state.
Again, this is why it is a good idea to consult with a professional attorney or accountant to determine what is best for your business. A few common conditions used in evaluating whether a company is transacting business in a state include determining whether or not the company:
- Has an actual physical presence in the state.
- Has employees in the state.
- Accepts orders in the state.
What Is a Qualified Dividend?
Form 1099 specifies whether dividends from a US corporation are considered qualified dividends. If a dividend is “qualified,” then it will be taxed a much lower tax rate. Three things determine if a dividend is a qualified dividend:
- The dividend must have been received from a U.S. corporation or a qualified foreign corporation.
- The dividend cannot be listed as a nonqualified dividend.
- The dividend has met the holding period requirement.
There are also going to be instances where a dividend is not going to be considered a qualified dividend. You will need to speak with an attorney to gain a better understanding of what does and does not qualify. In fact, the smartest move you can make when trying to register as a foreign corporation is to hire an attorney. They will be able to assist you with any questions you may have and can help ensure you meet all of the mandated requirements.
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