Not sure what a qualified foreign corporation is and have been hearing a lot of people talk about it? Well, the little idea that you have in mind by reading the name is right. A qualified foreign corporation is the one that conducts business in one state when incorporated in another state. In fact, the corporation needs to qualify as a foreign corporation to legally do business in that state.
For instance, let us say that you incorporate your business in Nevada and want to do business in California. Then, your company would be considered as a foreign corporation in California due to which the Nevada corporation would have to qualify as a foreign corporation to do business in California. Depending on the state, you might also have to register in that state and get a foreign corporation certificate. Keep reading to learn all about this.
What is a Qualified Foreign Corporation?
Every state usually has a similar filing process to qualify or get registered as a foreign corporation. But there are some states in the USA that need a bit more than that. So, before you just move ahead and file for becoming a qualified foreign corporation, it is important that you check with your Secretary of State based on the detailed requirements needed by the state.
Nonetheless, there are many general requirements that almost every state will demand. One such requirement is that the Secretary of State will need your company to fill out the form which is called the “Foreign Corporation Certificate” or the “Statement and Designation by Foreign Corporation”.
In this form, you will have to share the name of the corporation, the address of the principal office in the state of incorporation, the state of incorporation, the address of the principal office in the foreign state along with the name and address of the registered agent for that state. Each state needs a foreign corporation to offer the name and the address of the registered agent to give the state a means to communicate with the foreign corporation.
The registered agent (which can be either a corporation or an individual) has to reside within the state and offer a physical address (a PO Box is NOT accepted). This form has to be signed and dated by the corporate officer. You need to also note that the form will go with a filing fee for registering your company as a qualified foreign corporation and get a foreign corporation certificate.
A lot of states also need a “Certificate of Good Standing” before they can file for becoming a qualified foreign corporation. And if you have one, you will have to share a copy of it with the form you are filing to the state. This certificate would be used as a piece of evidence to show that your company actually exists and is authorized to conduct business in that foreign state or country. You can get this certificate from the state official from the state incorporation office.
Additionally, a few states might need the foreign corporation to list its assets and liabilities along with the assets and liabilities that the company holds in that state to be qualified as a foreign corporation. In fact, a few states can have many additional requirements when it comes to this form and the registered agent helping you. So, ensure that you are well-versed with the rules before you move ahead.
DISCLAIMER #1: If you are about to become a qualified foreign corporation, it gives the state a way to tax your corporation for the business it transacts within that state. This tax can be in addition to the other tax from the one that you pay to the state in which the company has been incorporated. In short, you can be paying double taxes in this case. So, to be on the safe and go through it properly, take the help of professional before you file the form on your own to get the foreign corporation certificate.
DISCLAIMER #2: Just so you are clear, not every transaction that takes place within the state is considered as the “business transactions” in that state. Every state might have a much unique interpretation of what is considered as a “business transaction” within that state. So, your company might not need to register to become a qualified foreign corporation in that state.
For instance, a Nevada corporation that sells things through the Internet and ships the products from Nevada to a customer in California would not have to register to become a qualified foreign corporation in California. So, ensure that you have all the rules clear before filing the form for getting the foreign corporation certificate for your company.
Not to mention, states are becoming more creative in taxing the foreign corporation and are pushing the limits of what constitutes the “business transactions” within a state. That is why it is better to stay in connection with a lawyer or a professional who can guide you in the right way. Else, you will be paying a lot of tax which can become very expensive for your company.
How to Become a Qualified Foreign Corporation?
The filing process to become a qualified foreign corporation varies from state to state. And due to this, it is suggested that you check the requirements and the process with the Secretary of State to make sure that you are compliant with the state laws. In fact, almost all the states need you to fill out the Statement and Designation by Foreign Corporation form. And in some states, you will need to give the Foreign Corporation Certificate.
Does a Foreign Business Need a Registered Agent?
If you are using a registered agent to file the form, you will also have to share the name and the address of the registered agent or the corporation living in the new state. Again, every state has different laws for the registered agent. So, ensure that you are clear with them as well.
How to Determine If You Need to Register as a Foreign Business?
As shared in an example above, you need to see if your company is physically present in that state or not to be eligible for filing for the qualified foreign corporation status. Here are a few common conditions that you can use to evaluate if the company is transacting the business in a state. To help you differentiate, the company should be:
- Physically present in the state.
- Have employees in the state.
- Accept orders within the state.
What Is a Qualified Dividend?
Now that you are clear with how to become a qualified foreign corporation, you need to know about the forms and taxes associated with it, especially when filing the form 1099. Just so you know, this form is used to share the amount paid to or received for offering a service from another company.
The form 1099 specifies whether dividends from a US corporation are considered qualified dividends. Basically, in case a dividend is considered as “qualified”, then it will be taxed at a much lower tax rate. In fact, there are three things that determine if a dividend is a qualified dividend:
- The dividend has met the holding period requirement.
- The dividend cannot be listed as a nonqualified dividend.
- The dividend must have been received from a qualified foreign corporation or a U.S. corporation.
Just remember that there would be instances where the dividend would not be considered as the qualified dividend. To get a better understanding of this, take the help of a professional like IncParadise.
How can IncParadise help you?
Well, IncParadise can guide you with making the right choice of registering your company as a qualified foreign corporation. In fact, we can also assist you with with the registration Foreign LLC in Nevada. And in case you haven’t yet incorporated your company, then IncParadise can help you there as well. All you need to do is contact us today!