What is a Foreign Qualification?

The last step of incorporating and setting up a company is only relevant to companies which incorporate in states other than the state in which they are physically located or active. In this case, a company will need to file for foreign qualification, which means submitting a document to the state in which they are actually based asking for permission to do business in that state.

In other words, if a company is based in Delaware but has its headquarters in Illinois, it will need to file a foreign qualification with Illinois in order to operate. This will inform the State of Illinois of the company’s existence, and gives that State the power to regulate and tax the company.

The actual document that must be filed varies from state to state (as does the fee which the company must pay to file it), but most states refer to this document as a “Certificate of Authority.” The requirements of the application may differ but usually include a mix of information about your business (such as how many shares you’ve authorized) and sometimes a certification from your state of incorporation called a “Certificate of Good Standing” that attests that your business conforms to local laws.

The fee is generally a flat rate, and for the most part, this fee is not especially substantial: it’s on the order of a few hundred dollars. However, in a few states, the burden can vary greatly, especially for high-growth startups. For example, in Virginia, the fee is calculated on the basis of the number of authorized shares, which results in a fee of over $2,500 for startups with 10,000,000 shares. Nevada, on the other hand, calculates its fee according to the value of the startup’s equity using a minimum par value of $0.001 per share, which ends up putting the fee for new startups with 10,000,000 shares at around $75.

Actually filing for foreign qualification is as simple as looking up the forms for the state in which you wish to qualify, filling them out, and sending them in. However, due to the variant nature of the fees (and forms), consulting a lawyer about this process is often advised. A Gust Launch subscription includes the process of foreign qualification and files the appropriate documents on its startup’s behalf, leaving founders responsible only for the fees charged by the state as well as a small filing fee charged by our filing partner, which depends on the state in which you wish to qualify.