At Simple Charity Registration we frequently get questions regarding corporate or business registration in states by charities who find it confusing and frustrating that they might have another required form of state registration on top of the charitable solicitation registration our site services. We decided to provide an overview of the topic.
What are Corporate Registration and Qualification to Do Business?
Many people refer to registering a corporation in a state as corporate or business registration. That is the process which “domestic corporations,” or those originating in the state and operating within the laws of the state, need to go through. For foreign corporations, those originating in another state, that sounds fairly unnecessary. The real term and purpose for foreign corporations, however, is “qualifying to do business” in a state. Very self-explanatory. It would seem reasonable that a state would need to know about a business making money from its residents.
How Do States Define Qualification to Do Business?
Generally, states have developed their business rules on the Model Business Corporation Act which differentiates between those domestic and foreign corporations we just discussed. Since business entities must follow the rules of the states in which they are created, domestic corporations have requirements to register their organizing documents, governing documents and keep them updated annually along with financial reporting. As with most of these rules, this increases the accountability and transparency of businesses operating within the state.
Foreign corporations are subject to separate rules since they are already regulated by their home state. As such, states only want detailed reporting if the foreign corporation “transacts business” in their state. While no state gives an absolute definition of transacting business, the Model Business Corporation Act lists several examples of activities that are not included. Among these are third party business functions such as banking or legal activity, interstate commerce (vs. intrastate commerce), one-time transactions that are completed within 30 days and not reproduced by other similar transactions, and sales where the oversight of the sale is done out of state.
To be sure, an organization that performs services in a state, has an office or other presence in a state, or has employees in a state does come under the definition of transacting business in that state and would need to qualify.
Take-away for Today
All states have some sort of corporate registration and qualification to do business. Some are more stringent than others and all need to be taken seriously because there are large penalties for non-compliance. To stay in compliance, do your homework and consult attorneys if needed. It all matters.
In the coming days we will go deeper into some of the questions that result from these processes to give you some background as you look into whether you need to qualify to do business in states other than your own.