Your friend Joe is starting a web-based business and plans to have clients in many states. He’s heard that Delaware is THE BEST place to form a company.
Unfortunately, he’s probably wrong about that, unless he actually lives in Delaware.
If a company plans to conduct business in any states besides the state where it's formed, it may need to register in those states with what’s called foreign qualification.
Foreign qualification is required for any state in which the company is physically located or receives a significant amount of revenue.
So, unless Joe lives in Delaware, he'll end up setting up another company in his home state, which means paying for two state's registration fees, registered agent fees and annual registration fees and/or franchise taxes. He'll also have to deal with the headaches of maintaining 2 companies.
Foreign qualification comes with additional laws to learn, so it’s good to know when it’s required and when it’s not. For any questions about this, please contact me.
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