What is the definition of doing business in a state?

If this is the case with your company, then you may need to “qualify as a foreigner” within that state. Your LLC or corporation must qualify to do business in any state where you participate in business within the state. This means that at least part of your business is conducted entirely within that state's borders. For example, if your company has a warehouse in another state and you sell and ship from that warehouse to customers within that state, you participate in in-state business in that state.

If the company in which they participate in a state is simply incidental to a larger interstate commercial operation, they may not have to qualify. However, if having employees and contractors in a state “counts as doing business is a little more shady, so we look at everything below. These model laws are not binding on any state, but serve as recommendations, guidelines, and best practices in the formation of business entity law. What all this means is that to avoid potential unexpected fines and taxes, it's a good idea for business owners to research a state's policies regarding exempt business activities that don't require foreign qualification.

At the end of the day, if you're conducting business across state lines for months, paying taxes, and making financial connections, you'll likely need to file documents and have your entity qualify. Under these laws (known as closed-door laws), a court will delay or dismiss your lawsuit if the defendant objects because you didn't qualify your business in the state. So what have we learned? We have learned that if you have an employee in another state explicitly for the purpose of conducting business in that state for a period longer than 30 days, you will need to qualify as a foreign entity in that state. For some corporations, it may be obvious when your business operates a store or store to conduct regular business in a state, as was the case with Moe's Southwest Grill restaurant.

In general, a company's level of activity in a state is a good indicator of whether or not “doing business for state registration purposes” would be considered. If the company is subject to jurisdiction in several states, the pool of potential plaintiffs increases. If you think that your company, by definition, “does business in another state, it's up to you to consult with the state and talk to someone who can better define the state's policies. Most states will consider a company to have participated in business within the state when it has employees in another state, owns or leases real estate, or uses a warehouse in another state to ship merchandise to customers in that state.

What Constitutes Doing Business also provides guidelines on what constitutes doing business in Canada, Guam, Puerto Rico and the Virgin Islands.

Kathleen Madyun
Kathleen Madyun

Evil zombie trailblazer. Unapologetic zombie aficionado. Coffee fan. Passionate organizer. Infuriatingly humble zombie nerd. Professional beer guru.