If you “do business” in other states, you need to file for foreign registration in those states that tells the state that you’re doing business there. So the question is, “How do I know if I’m doing business in another state?” What does “doing business” mean?
The easiest example is if you’re physically located in a state but you filed your LLC, corporation, or nonprofit in another state (think: Delaware in particular) for tax or other reasons. If that’s the case, you need to file for foreign registration in your home state that you’re physically located in.
There are other times when you might or might not be doing business in other states. It’s usually based on the types of transactions you have with someone in that other state. Are they “INTRAstate” or “INTERstate” transactions?
INTRAstate VS INTERstate Transactions
Generally, Intrastate Transactions will require foreign registration, while Interstate Transactions do not.
INTRAstate transactions are those conducted within one state’s borders. For example, if your company expands and opens a warehouse in another state, and will sell products from that location to people in or outside that state, you will need to file for foreign registration.
INTERstate transactions are those conducted across state borders. If your company is located in your home state, and you have transactions (sell products, services) in other states, you will most likely not be required to file for foreign registration. Amazon used to be the perfect example of this. They had warehouses in only a few states and when they sold goods to customers in states that didn’t have those warehouses, they could argue they weren’t doing business in those states.
Here are some other important scenarios when filing for foreign registration may be necessary:
If you have employees or a physical address in a state, you should probably register.
For example, you have a physical presence if you have an office located in another state where your employees go to work or meet with clients, a store where people shop, a warehouse where goods are stored, or a restaurant where people eat.
If your company conducts a substantial amount of business in another state.
The definition of “substantial amount” is still being interpreted even at the Supreme Court level. If you have a physical presence, you probably are conducting a substantial amount of business.
On the other hand, if you run an online business with out-of-state clients that you don’t meet with in other states, you don’t conduct enough business to the point where you need to file for foreign registration.
If a shareholder in another state conducts business within that state.
If your business partner or active shareholder in your business lives in another state, meets with clients in that state, stores business goods, has business real estate, or is otherwise running a part of your business from another state, you need to register in that state.
Activities that Don’t Require Filing
States vary, so it’s important to check state requirements (search for “foreign registration requirements in [state name]”), but here are some scenarios that generally do not require filing for foreign registration:
Scenario 1: Maintaining, defending, or settling a lawsuit. Just because you are sued or sue someone in another state does not mean you need to register there.
Scenario 2: Holding board of director or shareholder meetings in another state. You can hold your meetings out-of-state without needing to register.
Scenario 3: Borrowing money or acquiring mortgages from someone in that state. A new loan from an out-of-state lender doesn’t require registration
Scenario 4: Conducting non-repeated transactions completed within 30 days. Courts consider this an “isolated transaction.” Some states have a longer time limit than 30 days (Maryland for example does not have any time limit). To be safe, if your transaction takes more than 30 days from start to finish, just check the time limit for the state the transaction is taking place in.
The time limit can start as early as when the client engages your business and end as late as when the final payment is made. It will vary depending on the state. If the client is expected to pay you over time (think 3 easy payments of $19.99 over 3 months) then you should consider registering. If the sales contract calls for multiple deliveries or multiple payments over more than one month, you should register.
Scenario 5: Profiting from online transactions with out-of-state clients. Having clients in a foreign state who use your online services or order your products online, by itself, is not enough to require you to register in those clients’ home states.