Regulatory Compliance Of For-Profit Businesses Engaging In Multi-State Operations

As a business’s workforce grows and operations expand into other states across the nation, state-specific registrations and filings will result.

Timely registrations and renewals are critical to secure the right to legally operate in each state, as well as avoid costly fines and penalties assessed by state regulators for non-compliance.

Tovella Dowling represents national corporate clients that operate and employ workers in multiple states across the country. Evaluating triggers to qualification in another state is a fact-specific analysis that our attorneys frequently conduct for its clients to guarantee compliance and avoid unnecessary administrative filings, when possible.

When evaluating expansion into another state, whether it be to facilitate a new remote employee hire or roll out operations, or fundraising efforts, social enterprises must assess their registration and compliance filing obligations from the following perspectives:

Qualification to Transact Business as Foreign Corporation

Depending upon the scope and type of operation in a particular state, a business should evaluate whether it must qualify as a foreign entity with applicable state regulators. Foreign qualification is the process of formally registering to do business in a state other than its home state of incorporation.

The threshold triggering obligations to qualify to transact business vary on a state-by-state basis and generally involve a fact-intensive analysis and evaluations of a social enterprise’s particular connections to a given jurisdiction.

Engaging in business operations in a state in which a business failed to legally qualify can result in costly penalties and fees, as well as the risk of the state disallowing certain privileges afforded to other compliant businesses within the state.

Such privileges can include legal enforcement of contractual agreements with its residents or refusal of the business to engage in its state judicial process before gaining registration compliance. If required to register, the foreign qualification process generally involves an application process and annual renewal filings.

State Taxation and Reporting

Once qualified to transact business in a particular state, it should be evaluated whether that state imposes a state corporate tax. In such cases, the business will generally be assessed a tax on all revenue derived from that state and incur a tax reporting and filing obligation with the applicable state taxing agency.

Local Business Permits, Licenses, and Registrations

Finally, after addressing state qualification and state taxation, a social enterprise doing business in states other than their state of incorporation should assess whether their operations within the state trigger the necessity for any local permits, licensures, or other registrations.