Determining whether you need an attorney to form a foreign corporation depends upon what definition you ascribe to “foreign corporation.”
Registering a US corporation in a foreign country is one type of foreign corporation. You must follow the rules of the specific country in which you are registering. In this case, you should either familiarize yourself with the laws of the foreign country or use a legal agent.
Another definition of foreign corporation is a US corporation incorporated and owned by foreign individuals. There are few restrictions on foreigners to form a business entity within the United States. Operating the corporation, however, is very difficult if the company does not have agents or employees within the United States. If a foreign individual or firm wishes to incorporate a business within the United States, it is advisable to work with a legal professional who knows the legal requirements for appropriately incorporating and setting up the company for operations.
Finally, the most common definition of a foreign corporation is a corporation registered in one state but doing business or operating in another. A “domestic corporation” is a company that incorporates or is brought into existence in that state. That is, the corporation is domestic in its home state. If the corporation wishes to expand its business outside of the state in which it was incorporated, it must register in the new state. More specifically, the corporation must register as a “foreign corporation” in any state in which it decides to carry on business. While the corporation is still a US company, it is foreign to any state other than the one in which it is organized.
Below we cover when is filing required, the effects of filing, and the filing requirements. Understanding all of these attributes will help you determine whether you should hire an attorney for professional assistance.
What is required to form a corporation in any state?
To incorporate, a business must file articles of incorporation with the state’s secretary of state’s office. If approved, the state will issue a certificate of incorporation or corporate charter. The information required in the articles of incorporation include:
- the name of the corporation (including an indication of corporate status, such as Inc., Ltd, Corp, etc.);
- – the business corporate purpose;
- the registering agent or incorporator;
- a registered agent and address for service of process with in the state;
- the equity being issued (such as common or preferred shares);
- the number of shares and the par value of those shares;
- the company office or location of company records; and
a filing fee.
All states will set either a fixed amount or method of determine the registration fee. A common method for determining the registration fee is based upon the number of shares (common or preferred) authorized for issuance.
When is Filing as a Foreign Corporation Required?
As noted above, if you carry on business in a state other than your state of incorporation, you must register as a foreign corporation in that state. Failing to register can subject the company to significant penalties or fines. Further, failing to register may close off the option for the corporation to enforce certain contracts with third parties in state court. Lastly, failing to register as a foreign corporation could subject the company’s owners to personal liability for any debts or obligations of the company. This is known as piercing the veil of liability protection.
The term “carry on business” is not as obvious as it sounds. The following activities in a state normally requires a corporation to register:
- Owning real estate in the company’s name;
- Operating a store front or office;
- Generating a “substantial” amount of revenue in the state from out-of-state activity;
- Employing individuals (not independent contractors) in the state;
- Carrying on any substantial operations in the state.
The word “substantial” is not generally defined in a state. Whether a company is forced to register as a foreign corporation is largely subject to the interpretation of the state secretary of state’s office.
What actions are required to register as a foreign corporation?
Each state has its specific requirements for registration as a foreign corporation. Normally, the registration form requires the same information as required in the articles of incorporation. Most states require the name of the corporation, the corporate purpose, the registering agent, a registered agent for service of process with in the state, the home state of incorporation, and the location of company records. Finally, each state will set either a fixed amount or method of determine the registration fee.
How will registering as a foreign corporation affect the company?
Registering as a foreign corporation in a state subjects the company to numerous on-going requirements. First, the company must update its registration annually or whenever there is a major change in company information and pay an annual filing fee. Second, the company must register for a state tax identification number and sale and use tax identification number. The state tax ID will be used to pay income taxes and deposit employee withholdings.
Importantly, registering as a foreign corporation subject the company to legal process in that state. That is, if a plaintiff wishes to sue the corporation, she can bring the legal action in the state of registration. In legal terms, registering subject the corporation to the state court’s personal jurisdiction.
Let LawTrades Help File Your Foreign Corporation
If you decide you need the assistance of a lawyer to form your foreign corporation, look no further than the legal professionals at LawTrades. They can provide guidance, answer questions, and complete all of the paperwork to get your foreign corporation up and running.