What is Foreign Entity?
A Foreign Entity (also called “Out-of-State Entity”) is an entity formed in a state other than the state in which the company was originally formed.
As an example, if one has a Nevada registered corporation, and you that person wants to expand the business into New York State (e.g. buy real estate in New York City, etc) then this corporation would have to file as a Foreign Entity within the state of New York. That’s also called “applying for authority to conduct business in New York”, or “Foreign Qualification in New York State”.
Who Should Apply for Foreign Entity?
Typically, if a company conducts only few isolated transactions in a different state, there is no need to register a Foreign Entity in that state.
If, on the other hand, a company plans to develop a more serious business operation in another state, or plan to acquire assets such as real estate, then it must obtain authority to do so from the concerned state department. This process is commonly referred to as “Foreign Entity Qualification” or “Register Foreign Corporation/LLC”
If you are planning to develop business operations in the state other than the state in which you are currently doing business, then you must file for Foreign Entity with the new state (in which you want to conduct business). Foreign Entity status will help you to enjoy all benefits that a domestic corporation may have in that hosting state.
Penalties
Is there any penalty to transact business without getting Certificate of Authority?
Yes. there are. Without Certificate of Authority:
- the entity cannot maintain an action, suit, or proceeding in a court until it registers,
- the Attorney General can enjoin the entity from transacting business in the state,
- the entity is subject to a civil penalty equal to all fees and taxes that would have been imposed if the entity had registered when first required,
- if the entity has transacted business in the state for more than ninety (90) days, the Secretary of State may condition the filing of the registration on the payment of a late filing fee equal to the registration fee for each year or part of year of delinquency.
How Does One Register a Foreign Entity?
To register Foreign Entity one needs to file an application with the concerned authorities and pay a fee. In most states, registration requires disclosure of the company name, state of incorporation/organization and the name and address of the registered agent in the state for which the application is being made.
Keeping The Registered Name
A Foreign Entity can be formed with the original registered name, provided that this name is available in the state where it is planned to be registered. Otherwise, the company will have to adopt a name that does not conflict with any other company name or a trade name (DBA).