After deciding the type of entity your business will be, you must register with the appropriate state authorities. Most startups choose to incorporate in Delaware (see Why Incorporate in Delaware); but, if your company transacts business in states other than the state of incorporation, you must consider where else you may need to qualify to do business.
To become and remain qualified to do business in additional states, companies must pay a registration fee, annual taxes and any associated filing fees.
Transacting business
Activities that constitute transacting business vary from state to state.
Most states do not define what constitutes transacting business, but instead provide a list of activities that do not require qualification. For example, the Revised Model Business Corporation Act specifically excludes the following from its definition of “transacting business”:
“(1) maintaining, defending, or settling any proceeding;
(2) holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs;
(3) maintaining bank accounts;
(4) maintaining offices or agencies for the transfer, exchange, and registration of the corporation’s own securities or maintaining trustees or depositaries with respect to those securities;
(5) selling through independent contractors;
(6) soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
(7) creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
(8) securing or collecting debts or enforcing mortgages and security interests in property securing the debts;
(9) owning, without more, real or personal property;
(10) conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature; and
(11) transacting business in interstate commerce.”[1]
Whether your company’s activities constitute transacting business in a particular state will depend on the specific nature of the activities and the laws and regulations of that state.
Why register?
- If you do not register, your business may be subject to fines and may also have to pay past due fees and taxes (plus potential penalties) that the business would have owed if it had qualified when originally required.
- In addition, most states prohibit companies that have not registered from initiating lawsuits in that state’s courts.
- In some states, people who transact business on behalf of a foreign corporation that is not registered may also be subject to penalties and fines.
[1] Revised Model Business Corporation Act (2010) § 15.01
