Q: Does your business operate in multiple states? If so, you should consider whether your company should register to do business in all the states where it operates. A corporation, LLC, LP or LLP is of course authorized to do business in its state of formation. If you do business in any other state, you must register your company with the Secretary of State in that state.
A: One benefit of registering to do business in a state is access to the judicial system should your company need to bring a legal claim, for example for breach of contract against a local vendor. Additionally, if you are selling your business or seeking financing the buyer and/or bank will want the company registered in all the appropriate states. But, the most costly consequence of not being qualified in a state are the back taxes, fines and penalties assessed for the time operating without a foreign qualification.
These fines vary by state. New Hampshire imposes a $100 annual report fee and a $50 late fee on annual reports not filed. Under New Hampshire law, foreign corporations doing business in New Hampshire without being registered are required to pay all the annual report fees and associated late fees for each year they were operating in the state. Connecticut, similar to New Hampshire, requires foreign corporations to pay all annual report fees ($435 per year) for each year they were not registered. Connecticut also assesses a $300 penalty for each month during which a company was doing business without registration. These penalties can add up depending how long you’ve operated in the state.
What constitutes “doing business” in a state is not always clear, and it varies from state to state. However, if you have a physical location or employees based in a state you are likely “doing business” in that state. Importantly, “doing business” from a tax perspective and corporate law perspective are two different analyses and you should consult a tax lawyer or an accountant to determine whether you are subject to tax in a particular state.
Corporate lawyers are experienced in these matters and most have connections with the Secretary of State offices in their region. Hiring a corporate lawyer to assess whether your company should register in a particular state will limit potential liability for costly back fees and penalties and set your company on the right foot going forward.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to [email protected]. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.