On behalf of Kadish & Associates Law Group posted in Business Formation & Transactions on Sunday, January 26, 2020.
It’s common for business owners who operate a company that’s doing well to want to try to replicate its success. This is why many company owners decide to expand their business into neighboring states. You mustn’t assume that you can simply incorporate in Arizona and never establish yourself as a corporate entity in the other states where you do business though.
When you incorporate in Arizona, that generally only allows you to operate within this state’s borders. If you want to do business in New Mexico, Nevada or California, then you may need to go through the foreign qualification process to do so.
Many companies incorporate in either Nevada or Delaware because of the good corporate tax laws that they have in place. Just because you can set up a corporation in these states doesn’t mean that you don’t have to establish yourself in the state that you operate from. Even if you incorporate and have a registered agent in another state, you’ll still need to file for a foreign qualification here in Arizona.
If you have a company with a physical presence such as a restaurant, then you’ll generally need to incorporate your business in the state where you maintain your headquarters and file foreign qualification paperwork in the other ones where have locations.
Co-owners who reside in different states generally must also file for foreign qualification, especially if one partner performs work primarily in one state and another operates from a different one.
One of the few instances in which you may not have to file for a foreign qualification in another state is if you work as an online consultant. It generally doesn’t matter if you have clients in many different states who pay you for your work. Most individuals who work primarily via the internet are exempt from filing out foreign qualification paperwork under most states’ laws.
Corporate entities who fail to file the appropriate foreign qualification paperwork may be subject to fines and interest for any incorporation fees and taxes that they neglected to pay in secondary states where they do business. Any company that neglects to file for this status may lose their ability to file a lawsuit in certain jurisdictions as well. An attorney can advise you how your Phoenix business can remain in compliance with all appropriate laws and regulations.