Compliance Guidance

What is a foreign registration?

A foreign registration is simply a requirement for businesses to register with any states where they “do business”, outside of their domestic state. A domestic state is where a business was incorporated or domiciled. If your business isn’t foreign registered when it should be, there can be serious consequences.

When do I need to foreign register a business?

The rules about whether a business needs to foreign register vary by state. Some rules are clearer than others and they vary widely, which can make staying in compliance tricky. That said, Governments typically tend to look at similar factors to determine whether a company is doing business in a state. Those things include whether a business:

  • Employs people within the state
  • Owns or leases property within the state
  • Has certain levels of sales in the state
  • Has business licenses, pays taxes or conducts other regulated activities in the state

This list is illustrative, but not exhaustive. Importantly, a foreign registration is with the secretary of state, and does not always mean you’re registering with the state’s tax authority.

What happens if I don’t foreign register when I should?

If you don’t foreign register when you should, there can be serious consequences. 

You can be charged fees and penalties. Most states have some form of fine for non-compliance in the thousands of dollars, and you can start to accumulate interest on those penalties as well. Connecticut, for example, charges $300 per month for a failure to properly foreign register.

Commonly, you may not be able to bring a lawsuit in a state without being registered there.

You may get restricted from doing business in the state. For example, if you’re not foreign registered in California and you should be, your customers can actually void their contracts. Because many contracts include some kind of language around remaining in good standing, this is a real threat outside of California as well.

Officers, directors, and registered agents can be held personally liable for non-compliance. See California for example, but this is the case in multiple states, including Delaware.

Fortunately, Discern has codified all of the rules for foreign registration. Discern can tell you whether you may need to foreign register, even as your business evolves, among a variety of other things.

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