Compliance Guidance

What happens if I don’t foreign register my business?

If you don’t foreign register your business when you should, the consequences can be much more severe than most people realize. 

For example, if you’re not foreign registered in California and you should be, your customers can actually void their contracts with you. But it’s not just California, because many contracts include some kind of language around remaining in good standing, this is a real threat outside of California as well. In other cases, consequences range from simple fines and penalties, to personal liability among officers and directors.

The bar for whether a business needs to be foreign registered is low, since a foreign registration is simply a requirement for businesses to register with any states where they “do business”, outside of their domestic state. Just like foreign registration requirements vary state by state, the penalties do as well.

What kind of penalties apply?

Penalties for failing to foreign register your business are wide ranging by state, but generally fall into a few categories:

  1. Criminal penalties and personal liability
  2. Loss of legal protections for entities within the state
  3. Fees and interest charges

Unfortunately, criminal penalties are on the table. Officers, directors, and registered agents can be held personally liable for a failure to register properly, see California for example. This is the case in multiple states, with some examples (like Ohio) even potentially resulting in jail time.

If you’re not foreign registered when you should be, you can lose legal protections in that state. For example, you may not be able to bring a lawsuit - or worse, you may get restricted from doing business in the state all together. Besides the already discussed contract voidability, in many states other parties (think competitors, customers, or other incentivized parties) can bring an action to prevent you from doing business in a state.

Maybe unsurprisingly, you can be charged fees and interest. Most states have some form of fine for non-compliance in the thousands of dollars.

So how should you know where you should foreign register? Discern has codified rules for foreign registration, and can tell you whether you may need to foreign register, even as your business evolves. It takes minutes to sign up.

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