If your business is growing and expanding, you probably have a lot on your mind. Exciting new ventures are on the horizon, but there’s a lot you need to do before you can make the trek.
Your compliance requirements may change if your business is moving into new territory. You might need a Certificate of Authority before you set up shop across another state’s border. Here’s what you need to know and how Mosey can help.
What Is a Certificate of Authority?
A Certificate of Authority, sometimes called a foreign qualification, is a document that proves your business is legitimate. In your state, this certificate may be called something else.
Common alternative names for a Certificate of Authority are:
- Application for Authority
- Application to Transact Business
- Qualification Certificate
- Application for Registration
You don’t need a Certificate of Authority in the state where your business is established because the forms you’ve registered with the state prove that your business is in good standing. You’ll only need a Certificate of Authority to prove the status of your business to governments in other states if you intend to conduct business there.
Who Needs a Certificate of Authority?
If you established your business in one state and don’t intend to conduct business in any other state, you don’t need a Certificate of Authority in most cases. Your Certificate of Authority acts as a supporting document to validate the legitimacy of your business when you’re expanding. You’ll only need a certificate if you’d like to set up shop elsewhere.
If you plan to open up a new location or conduct specific types of business in a state other than the state where your business was established, you’ll likely need a Certificate of Authority to move forward. This is also the case if your intended business activities in a specific state would qualify you as a foreign entity under that state’s law.
Can You Do Business In Other States Without a Certificate of Authority?
A sole proprietorship will almost never require a Certificate of Authority because you are your own business. You seldom need to register as a sole proprietor, and compliance requirements for sole proprietors are essentially the same as tax compliance requirements for individuals.
Some states will allow out-of-state businesses to conduct certain types of business without a formal foreign qualification, like purchasing real estate or opening a bank account.
Since requirements differ in every state, it’s best to assume that you’ll need to satisfy a state’s foreign qualification requirements before you conduct business. It helps to double-check with local business authorities before you make any big moves.
What Are the Penalties for Doing Business Without a Certificate of Authority?
States set their own penalties for conducting business activities without a Certificate of Authority. The penalty usually depends upon the type of infraction you’ve committed. Small mistakes usually come with substantial but reasonable fines. Severe non-compliance issues can lead to a stake revoking your ability to ever conduct business within its borders again, even if you do obtain the proper certificates.
It’s important not to make any missteps. It’s a good business decision to thoroughly research compliance issues in a state before you contemplate conducting business there. You may have all of your priorities in order in your home state, but another state may have seriously different requirements.
What Does It Mean To Conduct Business in Another State?
States define “conducting business” in different ways. Some states will even allow one-time or very infrequent large business transactions without a foreign qualification if you don’t intend to regularly conduct business within the state.
Other states can be very strict. They may consider the smallest of transactions to infringe on their foreign qualification laws.
Most states share some core laws. Opening a corporate office or a retail location in another state is always considered conducting business in that state. If you intend to act as an employer in that state, build a warehouse there, or regularly trade goods or services there, you’ll always need a Certificate of Authority.
What Are the State Requirements for Obtaining a Certificate of Authority?
The process, fees, and methods of submission for a Certificate of Authority will slightly differ between states, but the core steps are usually the same. Most states impose similar, if not identical, requirements for completing the process.
You can find detailed instructions on the state’s Secretary of State website. You’re likely to find that most states will require you to do the following things:
Choose Your Business Name
Search to see if your business name is available in that state. If it isn’t, you may need to operate under a different name in that state. You may be able to use a DBA or a slight modification of your business name.
Hire a Registered Agent in That State
A registered agent will act as your official representative in the state, which is especially important for retrieving mail and government correspondence if you don’t plan to maintain a year-round physical presence in that state. Mosey can act as your registered agent.
Obtain a Certificate
Obtain a certificate from the state where your business is registered. Your state will offer a certificate that serves as proof that your business is properly registered and operating above board. This certificate is sometimes called a Certificate of Good Standing or a Certificate of Existence.
File Your Foreign Qualification Documents
Each state will request different documents and may have different methods of submission. You may need to pay a fee to file your paperwork or an express fee for rush processing if you need quick approval for an upcoming business arrangement.
States are very eager to encourage new employers to invigorate local economies and create jobs. Most states readily offer up instructions that are easy to follow — it may not be as easy to follow a legal description when a foreign qualification becomes necessary. It can be helpful to have your lawyer review the specific laws of each state where you intend to conduct business.
What Information Will I Need for a Certificate of Authority?
You’ll be required to provide key information for your Certificate of Authority. This information is used to verify the status of your business, keep you accountable, and act as a less intensive second registration for your business. States trust each other to vet business owners and the legitimacy of an organization, but they also need to maintain their own records.
For a Certificate of Authority, you’ll need the following:
The name of your business (or the name you’ll be using in that state, pending name availability)
Basic information about your business incorporation or Articles of Organization (state of incorporation, incorporation date, etc.)
Address of your main office and the address you’ll be using within the state
Name and contact information for your registered agent
Names and addresses of members or officers of your business
The type of business entity you use
The signature of the person officially in charge of representing your business (i.e., the owner or majority shareholder)
Some states may require more comprehensive information. State paperwork may ask you for information regarding your business assets and holdings. You may also be required to provide a detailed explanation of the business you intend to conduct within the state or a purpose for your expansion into the state.
It should be fairly easy for you to obtain the information you need to fill out your Certificate of Authority forms. You likely have most of it committed to memory. If your business situation is unique, it may be helpful to request your attorney’s assistance when filling out official paperwork.
How Long Does It Take To Get a Certificate of Authority?
Most states process applications within five days to two weeks. If you send your application by mail, it may take a little longer to reach its destination. You’re likely to experience faster processing times when you submit your application online.
If you’re in a rush, many states offer expedited processing for an additional fee. If waiting the full processing time can cause issues with non-compliance or affect your ability to conduct time-sensitive business, it may be worth the additional expense for expedited processing. Consider your needs at the time of application and choose the processing method that works best for your business.
How Mosey Can Help You Track Compliance
Tracking compliance issues can become logistically complicated when your business operates across several states. You’ll need to stay on top of several sets of important rules and restrictions. Thankfully, Mosey can help you manage everything.
Mosey is a simplified solution for business compliance management. Our compliance automation tools help you track every action item for state business compliance, walking you through the process of completing the steps.
Schedule a demo with Mosey to learn how we can help you grow your business.
