Now We’re in Business . . . but Where?

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Now We’re in Business . . . but Where?

Welcome back to the W+K business law blog! In our last few newsletters, we discussed certain important contractual provisions to protect you and your business (check out our last post here: https://www.weinsteinklein.com/limited-liability-and-the-contractual-gaslight/). But enough about boring contracts – let’s focus on foreign registrations.

What now? Let us break it down. Raise your hand if you’ve told someone (whether it’s a potential client, vendor, or business partner), that you operate in all 50 states (or, at least, more than 1 state . . . ). In today’s world, operating in different states is not that unusual – since COVID, companies have found themselves with employees and clients in various different parts of the country. This is perfectly normal, and can be a great thing, so long as it’s done right.

Second question: in which of those states is your company formally registered to do business as a foreign entity? *crickets* We thought so . . . chances are, you probably aren’t registered in each state in which you operate. But don’t worry. In this edition, we unpack foreign registrations and when you should consider the foreign registration process to ensure that your business is truly set up for success.

The Who, What, Where, When, and Why of Foreign Registration

First, foreign registration? Yes, don’t let the name confuse you. “Foreign” just refers to any state other than the state in which you’re incorporated. So, if you’re incorporated in New York, you’d register as a foreign entity in New Jersey in order to do business there. (Yes, we know, sometimes even a few miles difference can feel very foreign).

Foreign registration is the one time that you can be in multiple places at once. But who needs to formally register, and when? All businesses need to consider foreign registration if they have a physical presence, employees, or generate significant revenue in another state.

What does this involve? Typically, you’ll need to provide documentation to establish that you’re registered in your home state, proof that your company is in “good standing” in your home state, and then prepare some extra tax and related paperwork/authorizations (depending on where you register). Not a heavy lift at all, but an important one.

Which brings us to the next point, where should you register? Focus on states where you have significant operations, staff, real estate, or plans for expansion. In our experience, hiring employees in “foreign” states is the most common reason to register.  

Lastly, and arguably the most important piece, the why. Can you guess what we, as lawyers, believe the “why” is? Well, for one, it’s legally required based on a careful analysis of the factors and circumstances listed above. We don’t want you to be held liable for failing to register or failing to pay taxes in a foreign state. But beyond compliance, registering as a foreign entity enhances your credibility with clients and vendors, and ensures that you can fully enforce contracts and pursue legal action (*little known fact* that failing to register your business can preclude you from being able to file suit in that state). In essence, it legitimizes your operations and allows you to confidently expand your brand’s reach while minimizing risks.

Consequences of Failing to Register

As you can see, failing to register as a foreign entity can create all sorts of legal headaches. You risk facing hefty fines, back taxes, and even legal penalties. Moreover, unregistered businesses may not have the legal standing to file lawsuits or enforce contracts in that state, leaving you vulnerable and without recourse if things go wrong. Plus, your reputation might take a hit if clients discover that you’re not operating above board. Remember, legitimizing your business is everything, and this is just one of those things that further legitimizes your business both from a practical and legal perspective.

The Name Game . . . Revisited

Back when we started publishing this business blog, we asked you: what’s in a name? The answer was, well . . . a lot more than you think, and that’s also the case with foreign registrations. When registering as a foreign entity, you need to go through similar hoops to when you first started your business, and make sure that your business name is available. If your name is available in your home state, but not in your foreign state, one potential workaround is filing for a d/b/a (“doing business as”) either at the state or county level. In short, your name isn’t just a label; it’s a critical component of your business strategy that deserves thoughtful consideration and proper documentation!

To sum all of this up, while scaling and expanding is exciting and happens fast, make sure you take the time to review whether you need to register as a foreign entity in another state before exploring this New World, and if you do, do it right.

Now we hope that the legal landscape of foreign registrations is a little less “foreign” to you . . . but as always, if you’ve got questions, you know we’ve got answers.

~ The W + K Team