What Is a Foreign Corporation?

A corporation conducting business in one state when incorporated or chartered in another is considered a foreign corporation.

If your corporation will conduct business in any state or states other than the state in which it was incorporated, you'll need to determine what qualifications

Qualification or registration requirements. Every state requires some sort of registration or qualification for foreign corporations. Qualification requirements for foreign corporations vary from state to state, and are regulated by the state's Secretary of State.

The form required to be filed by foreign corporations is commonly called the Foreign Corporation Certificate, or the Statement and Designation by Foreign Corporation, and is mainly a way to provide information about your corporation to a different state from another state. Most of these statements require the name of the corporation, the state of corporation, the address of the principal office in the state of incorporation, and the foreign state, the name and address of the agent for service of process, and must be dated and signed by a corporate officer.

Some states have strict requirements regarding agents for service of process. Be sure to check on this. Some states also require that foreign corporations state their assets and liabilities. Registration or qualification of a foreign corporation must take place as close as possible to when the corporation starts doing business in another state. There will be a filing fee for registering as a foreign corporation.

Many states also require a Certificate of Good Standing (also called Certificate of Authorization or Certificate of Existence) to be filed by a foreign corporation along with the Statement or Registration described above. These certificates are issued by a state official of the state of incorporation as evidence that the corporation exists and is authorized to conduct business in that state.

Consequences of not qualifying or registering. Penalties and other consequences will apply for failure to qualify and register to do business in another state. Possible consequences include:

Monetary fines assessed against the corporation;

Monetary fines assessed against the corporation’s agents or officers;

Denial of the right to enforce contracts in the state courts;

Personal liability of the corporation’s officers or agents for the acts of the corporation in the state.

State taxation of foreign corporations. The other reason states have for requiring foreign corporations to register and qualify in their state is to collect taxes from those corporations. You should determine what state taxes your corporation will be required to pay in other states in which it will do business.

Check out AllBusiness.com's Tax/IRS Directory, which contains resources from the IRS and state taxing authorities in an easy-to-use format. IRS Resources guide you to most of the IRS information you'll require for your corporation. The State Tax Resources provide a link to each state’s taxing authority’s Web site. Tax information for counties, cities, and other localities will be available from those government offices.

Also read Picking the State of Incorporation for Your Small Business for further guidance.