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What is foreign qualification?

Business owners in Ohio who want to expand their company into another state may need to go through a process called foreign qualification. The term may be confusing as it seems to refer to doing business in another country, but this is not the case. 

According to Entrepreneur, a foreign qualification notifies the state one will be working in about their intentions. The business owner needs to fill out paperwork through the secretary of state’s office, and the company needs to be in good standing such as current with business filings and taxes. One of the benefits of applying for a foreign qualification is it simplifies the administrative work that accompanies running a business. By registering the company in the new state, the owner continues to only have one corporation as opposed to different corporations in each state. This means holding only one annual meeting and having one board of directors and bylaws.

Not registering the business can result in penalties such as back taxes, fines and interest. Business owners who are unsure whether they need to file a foreign qualification can follow guidelines set out by Forbes. A qualification probably needs to be filed if the owner:

  • Filed for a license to run the business in another state
  • Has a store or office space in the state
  • Makes a substantial amount of revenue from the state
  • Has face-to-face client meetings in the state
  • Is paying state payroll taxes 

Business owners and consultants who conduct online business with multiple states typically do not need to get foreign qualification. Corporations should consult an attorney to determine if they are required to register their business in another state or not.