Do I Need to Qualify?

Do I Need to Qualify?

Many companies incorporate in a state based on taxes and other advantages, and then qualify or register in the states in which they do business.

Whether or not you need to qualify in a given state is often governed by different laws, as different Secretaries of State tend to have different requirements for qualification.

As a general rule, if you employ W-2 wage earning employees within a particular state, or if you have a physical presence there, i.e. an office, you will need to qualify in that state. However if you have no physical presence within a particular state and your business transactions are fairly limited, there is a small probability of having to qualify in that state.  

The Commerce Clause of the Constitution prohibits US States from regulating corporations involved in inter-state commerce: this is commerce between parties located in two or more states. If you are doing a lot of business in one particular state, even though you are domiciled elsewhere, the commerce conducted could be considered “Intra-state” rather than “Inter-state,” which the State in question can regulate. A court would usually take into account the frequency and level of involvement of the business being conducted from one state to another.

There are however, several activities that do not usually require qualification. These include but are not limited to:

  • Owning personal property 
  • Using independent contractors 
  • Maintaining a bank account 
  • Holding board meetings 
  • Conducting isolated transactions.
We always suggest consulting an attorney if you have questions regarding whether or not you will be required to qualify as each situation should be consulted on a case-by-case basis.