Are You Operating Your Business in Multiple States? What You Need to Know

As a small business owner, it can sometimes feel like you’re expected to be an expert in tax and state law. One common area of confusion and misconception is conducting business in multiple states. By law, if your company plans to conduct business in any other states than your state of incorporation (or LLC formation), then you may need to register your business in those states. This process is called foreign qualification.

For example…

  • You have a restaurant in Florida and decide to expand into Georgia and South Carolina. Once you have locations open in those states, you’re doing business there and will need to file a foreign qualification in both Georgia and South Carolina.
  • You incorporated your business as a Delaware LLC, but are physically located in New York. You’ll need to file a foreign qualification to conduct business in New York. (For this reason, it’s often best for small companies with fewer than five shareholders to incorporate in their home state.)
  • You live in Washington and your business partner lives in California. You incorporated your company in Washington, but recently your partner has been finding and meeting with the bulk of your clients near his home in California. You’ll need to file a foreign qualification in California.
  • You’re a consultant who performs the majority of your work online, with clients in multiple states. In this case, you do not need to file a foreign qualification. Just because you’re making money from clients in other states doesn’t mean you’re transacting business there, according to the law.

multiple states

What is meant by “doing business?”

In today’s mobile/virtual world, it can be difficult to know just what constitutes doing business in a state. If you’re uncertain whether your particular business needs to foreign qualify, you should check with your attorney or accountant. However, here are some general questions to answer:

  • Does your LLC or corporation operate out of any physical presence in the state (i.e. office or retail store)?
  • Are you frequently conducting in-person meeting with clients in the state (and not just conducting business via email/phone)?
  • Does a significant portion of your company’s revenue come from the state?
  • Do any of your employees work in the state? Do you pay state payroll taxes?
  • Did you apply for a business license in the state?

If you answered yes to any of these, your business may need to file a foreign qualification in the appropriate state.

What is a foreign qualification?
To register your company in another state, you will need to submit a Certificate of Authority application (sometimes it’s called a Statement & Designation by a Foreign Corporation) with the particular state’s Secretary of State office. You can download the form from the Secretary of State’s website or have your incorporating company handle the filing and requirements for you. Some states will require you to have a certificate of good standing from the state where your LLC/corporation was formed (which means you’ll need to be up to date on your state taxes, fees, etc.).

Why is a foreign qualification important?

Foreign qualifying your company in states where you conduct business is your legal obligation. Failing to properly register your company could result in:

  • Fines and interest for any time when you were not foreign qualified (in addition to paying the standard fees that should have been paid)
  • Liability for back taxes for the time when you were not foreign qualified
  • Inability to sue in a state where you are not registered

You’ll want to foreign qualify in as few of states as possible. After all, with each foreign qualification comes filing and/or annual fees, additional laws to learn, and added paperwork. However, you simply can’t overlook your business’s legal requirement to foreign qualify; it could end up costing you much more in the long run.

13 Comments ▼

Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

13 Reactions

  1. Since I do most of my work online for clients all over the country, I’m glad I don’t need foreign qualification. That would be a major pain.

  2. Thanks for the post! Quick question – would a company such as airbnb.com that offers online housing rentals be required to register in each state they offer rentals in? Even if they do not have a physical presence in each state and are based out of CA, they offer professional photos of many of their properties, which requires an employee or contractor to be physically working in that state. Would this classify them as “conducting business” in that state?

    • Nellie Akalp

      Hi Rob –

      Thanks for reading my post and commenting!

      Generally speaking a company that offers online services whether it be housing rentals or any other form of service may be required to register in each state they offer services/rentals in if the transaction took place in that state and the income received from those rentals were received in the state they are doing business in. Physical presence in each state is based on where the transaction takes place and where the monies/income are being deposited into…ie state and if one is accepting and exchanging transaction in that stew, that state’s laws will apply and one must register within that state.

      I hope that helps! Should you have questions and want to discuss further, feel free to call directly at 888.752.0363

      Thank you!
      -Nellie

      • Thanks for the response Nellie! So if we offer an online service in a specific state, but do not have a physical location or bank in that state, would that free us from having to register?

  3. Nellie Akalp

    Hi Rob –

    Thanks for the response.

    Again I cannot give you legal advice, however, the questions’ that you want to ask yourself as follows: even if an online business, where are the servers held, what location? Where are the shareholders located or the employees? The answers will provide you with the answer as to location and which state’s laws will apply. Where are you located and where are you coming up with the ideas to create the business?

  4. If I have an online business with no physical presence in other states but I match students (income paid into my home state) with mentors who maybe located in several other states (that I pay as independent contractors- no taxes withheld). The independent contractors receive one flat rate for services -and all communications occur online, phone, email. No bank accounts in other states, no employees- just independent contractors. Do I need to foreign qualify in the other states? The majority of my business is in home state but I may occasionally get a student needing matching out of state.

    • Nellie Akalp

      Hi Jeanette – Thank you for reading and commenting on my post! Unfortunately I cannot give you legal advice on your specific circumstance, however, I can tell you that a foreign qualification is filed for every state a business has a physical location in so the business can operate in that state.

      I hope that helps!
      Happy New Year!
      -Nellie

  5. An educational consultant who works primarily from a home state but goes into other states sporadically (maybe once or twice a month) to meet and advise clients under contract, would they be required to foreign qualify?

    • Nellie Akalp

      Hi Kendra,

      Thank you for reading & commenting on my post! Generally speaking, a corporation or LLC will need to foreign qualify their business in additional states if they have locations in multiple states or if they are doing a significant amount of business in multiple states.

      I hope that helps!
      -Nellie

  6. In addition to opening franchised shops in my home state of California, I am considering one or more in Oregon. It appears I can apportion income appropriately to both states for income tax reporting. What are the pros & cons of registering my C-corp in Oregon as a foreign corporation versus creating a subsidiary corporation in Oregon? Are there other, more preferable, options?

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