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Is a Certificate of Authority Important for your Business?
While the COVID pandemic has destroyed many small businesses, it also launched a large number of new ones. In fact, many business owners and entrepreneurs have experienced a great deal of growth in the last two years. If this describes you—and you are planning to sell goods or provide a service outside of the state in which your company is registered—you may need a Certificate of Authority.
A Certificate of Authority proves that your company is legally authorized to conduct business outside of the state where you initially filed your company. Also referred to as a Foreign Qualification, the Certificate of Authority allows an LLC or corporation to lawfully conduct or transact business in another state and comply with the compliance rules developed for each state.
It is important to note with your foreign corporation or foreign LCC, that the word “foreign” does not equate to markets outside of the United States. Instead, it applies to the states other than your home (or domestic) state that may have different rules and processes.
Below are several FAQs to help you understand more about a Certificate of Authority and if your business needs one:
What’s the purpose of a Certificate of Authority?
A Certificate of Authority provides states with important business entity information, such as the official business name, names of owners, and legal status, such as a limited liability company, corporation, or limited partnership. When determining whether a business actually needs a Certificate of Authority, each state has different rules, so it is very important to check with your state.
What does the process of getting a Certificate of Authority entail?
The process for getting a Certificate of Authority is not difficult. In addition to filing the state’s Certificate of Authority form and paying fees, some states ask you to obtain documentation showing that your business is in good standing in its home state. This includes a Certificate of Good Standing or Certificate of existence issued by the office of the Secretary of State. Some states require certified copies or proof be obtained within a specific time frame of the Certificate of Authority application—typically between 30 and 60 days.
Most business owners file a Certificate of Authority form with the state’s agency that regulates businesses, such as the Secretary of State. To additional information, visit the agency’s website for detailed information.
It is imperative to check that your company name is available in the state in which you want to acquire a Certificate of Authority. If your preferred name is already in use, a “doing business as” can be required.
Some states may require you to have a registered agent within the state, so that you have a representative who is able to receive service of legal process on behalf of your business.
What are the costs of obtaining a Certificate of Authority?
The application process includes a filing fee, which typically ranges from $25 to several hundred dollars. In addition, the fees differ based on the type of company you own.
What is the processing timeline?
The Certificate of Authority processing time tends to vary. In most states, the average waiting time is a few days. However, in some cases, it can take as long as a few weeks. While expedited processing will complete your registration in a few hours, it also adds several hundred dollars to your application cost.
What happens if you do not get a Certificate of Authority?
Failure to obtain a Certificate of Authority could result in penalties, fines, and back taxes. In addition, one consequence of failing to obtain a Certificate of Authority is being denied the right to bring a lawsuit in that particular state’s court system. As a result, it is important that you are in full compliance with all applicable state laws to avoid any legal and tax problems.
If you are planning to conduct business in several states, you must apply your foreign entity with each state. But do not fear – the application process is often the same in each state.
What’s the definition of doing business in a state?
It is vital to comprehend the definition of “doing business” within a state. This typically includes the following criteria:
–Operating from a physical location, such as an office space, warehouse, restaurant, or store
–Hiring employees from the state where you are applying for the Certificate of Authority
–Maintaining a bank account in that particular state
–Regularly entering into binding contracts in that state
–Consistently meeting with customers/clients to conduct business in the state.
What are the main advantages of obtaining a Certificate of Authority?
There are several benefits of a Certificate of Authority. For example, applying for a Certificate of Authority means that you can expand your company in a new state without needing to incorporate as a new business. In addition, you can collect sales tax on goods and services.
How can I avoid delays or unforeseen problems?
To prevent delays or problems—and to ensure a smooth process—it is vital to follow the application instructions and provide the requested documentation. Additionally, some business owners find it helpful to speak to a lawyer or work with a registered agent, since every state and type of business has different requirements. If you submit an application with errors or missing documents, this could result in a rejected application and additional registration fees.
The bottom line is that obtaining a Certificate of Authority is not only essential for growing businesses, but also a necessity for organizations looking to achieve success in the business world.
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