What does it mean to be doing business in a state?

If this is the case with your company, then you may need to “qualify as a foreigner” within that state. Your LLC or corporation must qualify to do business in any state where you participate in business within the state.

What does it mean to be doing business in a state?

If this is the case with your company, then you may need to “qualify as a foreigner” within that state. Your LLC or corporation must qualify to do business in any state where you participate in business within the state. This means that at least part of your business is conducted entirely within that state's borders. For example, if your company has a warehouse in another state and you sell and ship from that warehouse to customers within that state, you participate in in-state business in that state.

If you come to the conclusion that your activities could be considered intrastate business in some states, it's best to qualify to do business in those states. It makes sense for you or your lawyer to find out the rules of the states in which your company participates in any intrastate business. What all this means is that to avoid potential unexpected fines and taxes, it's a good idea for business owners to research a state's policies regarding exempt business activities that don't require foreign qualification. While each state adopts its own business entity laws, most state business codes and the common law developed in that state are relatively similar.

What Constitutes Doing Business defines what constitutes doing business by a corporation in states foreign to the state of its incorporation. If the company in which they participate in a state is simply incidental to a larger interstate commercial operation, they may not have to qualify. Things get muddy when business owners have to decide what constitutes “doing business,” so it's important for business owners to understand the risks of playing fast and loose with foreign qualification. All states offer some form of “safe harbor” with respect to commercial transactions that do not deserve foreign qualification, something like a gray area for what constitutes doing business.

The substantive laws of the home state governing the organization and maintenance of the business entity shall continue to apply to the company's operations in the foreign state. Each state has its own variations on when a company should qualify as a foreign (out-of-state) corporation or LLC, but they all follow this same basic principle: Companies must qualify in a state if they participate in in-state business in that state. What Constitutes Doing Business also provides guidelines on what constitutes doing business in Canada, Guam, Puerto Rico and the Virgin Islands. Second, conducting business in multiple states adds complexity to calculating business tax liability.

For some corporations, it may be obvious when your business operates a store or store to conduct regular business in a state, as was the case with Moe's Southwest Grill restaurant. While all states require foreign corporations doing business in the state to qualify, no law contains a comprehensive definition of the term doing business.

Meg Skrzypek
Meg Skrzypek

Certified zombie buff. Professional social media maven. . Freelance zombie nerd. Award-winning music guru. Award-winning travel nerd.

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