Overview: Certificate of Authorization

Simply put, a Certificate of Authority allows you to legally conduct business outside of the state where your company was formed, whether as an LLC, C Corporation, or non-profit. The Certificate of Authority, also known as a Foreign Qualification, is crucial because it allows an LLC or company to conduct business "lawfully" and adhere to state-specific compliance requirements.

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(Note that the term "foreign" does not refer to markets beyond the United States; rather, it refers to states other than your home, or domestic, state, which may have distinct rules and processes, as well as tax-related restrictions.)

If you want to open a shop in more than one state, you must apply to each one separately. Don't let the registration process discourage you. Even if the applications and required documentation differ from state to state, the process is generally the same. A Certificate of Authority verifies that you are permitted to conduct business in a state other than the one in which you were formed. In most states, a Certificate of Authority is required. It's worth noting that the document's name varies from state to state. It could be called an Application for Authority, an Application for Registration, an Application to Transact Business, a Qualification Certificate, or something else entirely. To make matters even more complicated, the requirements and process for obtaining the certificate may differ by jurisdiction. Did you realize that? In different states, a Certificate of Authority might mean different things. The New York Tax Department issues a Certificate of Authority, which includes your sales tax ID. Your firm will be able to collect sales tax and issue and accept most New York State sales tax exemption certificates with the certificate.

When do I need a Certificate of Authority?

The answer is contingent on whether you meet a state's "doing business" requirements, which are not always clear. The amount and types of activity that trigger company registration vary per state. In truth, most states simply mention actions that do not qualify as doing business in their jurisdiction.

Meeting any of the five conditions below, in general, indicates that you are "doing business" in that state and require a Certificate of Authority:

• You have or plan to have a physical presence in that state, such as an office, warehouse, retail, or restaurant.
• You employ people in the state.
• In that state, you often enter into legally binding contracts.
• You conduct business with clients or consumers on a regular basis in that state. (On the other hand, phone/teleconference meetings and email are less likely to be regarded as "doing business.")
• Your company generates a consistent and large amount of money from activities in the state.

This is far from a comprehensive list. What constitutes doing business is defined differently by state statutes and courts. It is advisable to seek legal assistance to determine whether your company needs to foreign qualify and receive a Certificate of Authority in a specific state.

Sole proprietorships

Because your firm is related to you as the owner and is not registered with any state as a domestic or foreign entity, you are usually excused from getting a Certificate of Authority if you operate as a lone proprietor.

However, take in mind that state laws can vary. You may be required to register your business with your Secretary of State or another commercial body. Other regulatory requirements will apply to you, such as applying for and handling state and municipal business licenses, permits, taxes, and more.

What are the penalties for not obtaining a Certificate of Authority?

The most serious repercussion of failing to get a Certificate of Authority is that the foreign state may deny your company the opportunity to file a lawsuit or engage in other legal actions in its judicial system. For example, if a partner or client breaches a contract, you would be unable to litigate for damages or to have the contract enforced (although you would be able to defend your business).

States will levy fines, penalties, and back taxes for the time your company did business without a Certificate of Authority. Individual officials or consultants of your company may be fined by some states.

What information is included on a Certificate of Authority?

The information can vary, although commonly required information includes the following:

• Company name
• Date and state of incorporation
• Name and address of a registered consultants in the state of qualification
• Name and address of officers (for corporations)
• Number of authorized shares and a listing of the different classifications of stock (for corporations)
• Signature of a corporate officer (typically the president) or member/manager (for LLCs)

Some states also request the following additional information:

• Name and address of directors (for corporations) or members/managers (for LLCs)
• Duration of the corporation or LLC (usually perpetual)
• Number of issued shares of stock (for corporations)
• Financial information, including information on assets
• A specific business purpose clause outlining the type(s) of business the company will undertake in that state

How much does a Certificate of Authority cost?

Filing fees for a Certificate of Authority vary by state and entity type.

How to register for a Certificate of Authority

Refer to the directions on the Secretary of State's website in the location where you propose to do business to file for a Certificate of Authority or similar form. This information is typically found in the Foreign Corporation or Foreign LLC categories.

Be advised that completing the international qualification process before your company can do business in a state other than its home state may need additional processes. The following are common examples:

• Determine if the business name is available
• Appoint a registered consultant in that state
• Order a certificate of existence or certificate of good standing from your home state
• File qualification documents

Failure to Obtain a Certificate of Authority

If your firm is required by a state to obtain a Certificate of Authority and you fail to do so, you may face penalties, fines, and back taxes.

If you need a Certificate of Authority, you have the option of filing all of the necessary documentation yourself or using an online legal document creation service to complete the process. Although the procedure is not difficult, it is critical that you follow all applicable regulations to avoid any legal or tax issues.