If you're a non-US business, you'll want to learn about foreign registration and nexus requirements.
Foreign registration refers to the process of registering a business that is incorporated in one country (in this case, outside the US) to do business in another country. This process ensures that your business is recognized legally by the Secretary of State and can operate within the US.
Nexus requirements refer to the criteria that determine whether a business has a sufficient connection, or "nexus," with a state to require it to collect and remit sales tax on sales made to customers in that state.
There are two main types of nexus: physical presence nexus and economic nexus.
Physical presence nexus is established when a business has a tangible presence in a state, such as having an office or warehouse, or employing people in the state.
Economic nexus is based on the amount of sales or transactions a business has in a state, regardless of physical presence.
It's important to note that each state has its own rules regarding what constitutes "doing business" and operating within their borders.
The foreign registration process
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Decide where to register: Identify which states you'll be conducting business in and need to register. This depends on various factors such as where your customers are located, where you plan to open a bank account, and where you'll have any physical presence.
Obtain a Certificate of Good Standing: Secure a Certificate of Good Standing (or its equivalent) from the country where your business is originally incorporated. This document verifies that your business is compliant with local regulations and in good standing.
File an Application for Authority: Submit an Application for Authority to the Secretary of State in the US state(s) where you plan to do business. This application will typically require details about your business, including the name, address, and names of company officers or directors.
Appoint a registered agent: This agent will be responsible for receiving legal documents on behalf of your business.
Comply with state regulations: Each state has its own specific requirements, fees, and forms for foreign registration. It's crucial to familiarize yourself with and adhere to these regulations.
Maintain compliance: Once registered, ensure you maintain compliance with state laws, which may include filing annual reports, paying fees, and adhering to other state-specific requirements.
What happens if I don't foreign register my company?
Consequences for conducting business with proper registration can vary depending on each state’s laws and regulations. This may include:
Fines and penalties: These can add up quickly and become quite costly.
Inability to sue: This can be a significant issue if you need to enforce a contract or seek legal remedy in that state.
Void contracts: Some states may consider contracts entered into by an unregistered foreign entity as void or unenforceable. This can lead to complications in doing business and could jeopardize your agreements with clients or partners.
Tax issues: You may be subject to back taxes and interest, and you might miss out on potential tax benefits or exemptions.