How to Do Business in Multiple States

As a business owner, you want to expand your business and reach as many people as possible no mater where you are. You might be a freelancer working with clients across the country or have an e-commerce store and ship items around the country every day. You can even be considering a second location for your brick-and-mortar store in another state.

Even if you are a sole proprietor, you can run an interstate business. There are some factors to consider depending on the scale and goals of your company.

If your business operates on an online store or performs freelance services, you do not have to do anything special if you ship to other states or have clients located in other places. The connection between your business and a state strengthens and you want to look into the regulations of that state to see if you need to register with the agencies of the state. For example, if you hire a remote worker in another state this is a weaker connection than opening another office there, but there could be cases where you still need to incorporate.

Every state has different regulations. It is always smart to check the rules for the states where you are doing any business.

Consider the Following Scenarios

If you are thinking of opening a store, physical office, or restaurant in another state, you need to register with that state. This is also called “foreign qualification”.

You may already have incorporated your business in a state that is not your home state due to tax reasons. If you do most of your business from your home state, you need to register for a foreign qualification there. It is recommended that you incorporate in your home state if you have fewer than five shareholders.

You might need a foreign qualification if you have W2 employees or pay payroll taxes in a different state. Other factors include the location of the bank account and where you have a physical presence.

Research Different Agencies

States have different agencies involved in the operation of small businesses. To register and incorporate your small business, you need to get in contact with the Secretary of State. You might also need to be aware of business licenses or business-specific taxes.

The state wants to know what your intent is to do business in the state, the nature of your business, and your contact information.

Foreign Qualification

The Secretary of State is in charge of overseeing foreign qualification filings. Corporations and Limited Liability Companies are only considered domestic in the state where were formed. This is why they are considered “foreign” for other states.

An office might require a certificate of good standing from where the state where the business was created. You want to ensure that you follow closely the regulations in the home state of your business. If you do not have a foreign qualification, you can be found liable for back taxes and be fined. You cannot file a lawsuit or defend against lawsuits in a state without a foreign qualification.

Beyond initial fees, there are usually annual costs to keep a foreign qualification in good standing.

The Bottom Line

Some states require annual reports and “registered agents” can only be the ones to file the reports. A registered agent is someone or a business legally residing in the state.