Why should you care in which states your company is transacting business? It is an important consideration for at least two reasons:
1. Qualifying as a Foreign Entity. If your company transacts business in a state other than the state in which it is organized, your company is supposed to register in that state as a foreign company. This holds true for companies organized as limited liability companies, corporations, or other entity types that require formal filings. In this sense,“foreign” can simply mean that your company is organized under the laws of another state. For example, if your company is organized as a Maryland corporation, it is a foreign corporation in Texas and Pennsylvania. Qualifying as a foreign entity typically requires filing the same paperwork and paying the same fees as you would file and pay had you organized as a domestic entity under that state’s laws.
2. Being Sued Out of State. The United States Constitution limits the circumstances in which a person or company can be sued in the court of another state. In order for your company to be sued in another state, your company must have some relationship or engage in some type of activity within the state. Transacting business in that state can qualify as the relationship or activity that allows your company to be sued in that state.
Whether or not you are transacting business in a particular state can be fact specific and can vary in accordance with the laws of the particular state. Here are some very general guidelines.
Your company probably is transacting business in the state if:
- The company maintains an office in the state.
- The company regularly targets residents of the state for its sales and marketing efforts.
- The company has employees that reside in the state.
Your company probably is not transacting business in the state just because:
- Company representatives attend a meeting or conference in the state.
- The company maintains a bank account in the state.
- The company conducts a one-time transaction within the state.