Foreign Qualification Common Mistakes
If I told you how many mistakes are made every day when clients attempt to file the applications for foreign qualifications, you would not believe me. Harvard Business Services, Inc. has been in business for over 40 years and we’ve done tens of thousands of registrations. I personally have done over 6,500 foreign qualifications in my 10 years at Harvard Business Services, Inc. We’ve seen it all. We’ve learned from trial and error, and you can benefit from our hard won expertise.
Completing the foreign qualification process allows an entity to conduct business in a state other than the state in which it is incorporated. The basic triggers for the foreign qualification are:
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Opening a business bank account
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Hiring employees in the state
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Any physical presence or nexus – brick and mortar
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Holding assets
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Generating revenue
It all boils down to two things—taxation and transparency. States want to know exactly who is conducting business in their state. The most common mistake is delaying the process until the last minute. Maybe you are hesitant about taxation or making your company info public, but these are not the times for procrastination. Nearly every single Secretary of States’ office in the US is experiencing some form of processing delay since the onset of the pandemic in 2020. If something used to take two days, now it’s two weeks, and in some cases, it’s two months or more. Now more than ever, it’s important to fulfill the necessary foreign qualification requirements on time.
Other frequent mistakes can just as easily be avoided. One is simply using the wrong title on the application. I’ve seen applications in which clients have incorrectly listed officer titles instead of using a member or manager for an LLC. I’ve also seen applications in which members or managers are incorrectly listed on the application for a foreign corporation. Some states have a requirement that only certain officers can sign the application. For example, in Washington, D.C. and Maryland, the President or Vice President of the entity must execute the foreign qualification application. Furthermore, omitting information such as the address for one of the officers, directors, members, or managers causes the application to get rejected. Not providing the appropriate accompanying documentation, such as a Certificate of Good Standing or a Certified Copy, will certainly cause the application to get rejected. As well, some states require Certified Copies of multiple filings.
Depending on the state, you may not get the rejection for weeks, and then you may have to then start the process all over again from the very beginning. This is another good reason to let professionals with experience handle a foreign qualification filing for you.
If today is the day for you to foreign qualify your business, give us a call. I can be reached directly at 800-345-2677 ext. 6133 or andrew@delawareinc.com.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source's content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.