Are you planning to expand your business and grow your operations? This is a major milestone in any company's life. However, there are a few steps you need to follow in order to achieve legal compliance and be granted the right to do business in another state. Obtaining a certificate of authority is a must.

Tip

If you're planning to expand your business and sell goods or services in another state, it's necessary to obtain a certificate of authority.

Doing Business in Another State

As a business owner, you may want to secure the most favorable tax environment for your company or expand its physical presence. Either way, doing business in another state is an option worth considering. In this case, it's necessary to apply for a certificate of authority in the state where your company will operate.

Each state has different laws and regulations concerning businesses. Any business that operates in a state other than its state of formation is considered a foreign entity and requires a certificate of authority. With this certificate, you can expand your operations in another state, hire employees who reside within the state and open a store or office in that location without the need to incorporate a new entity.

The process of applying for a certificate of authority to do business is called foreign qualification. It's a requirement for any business owner whose actions go beyond minor transactions in another state. If you plan to operate in several states, you must apply for this certificate in each state and pay the necessary fees. This can be done online or in person.

Statement of Authority Definition

Be aware that a statement of authority isn't the same as a certificate of authority. Also known as a statement of partnership in business, the statement of authority is a written declaration used by partnerships, LLCs, corporations and other legal entities to evidence the organization's existence and the identity of the persons who can act on its behalf.

Basically, this document states who has the authority to conduct operations and make decisions on behalf of a company. Even though it's not required to have a statement of authority, many businesses choose to sign one for legal purposes. For example, if conflicts arise in a partnership, such evidence is useful in a court of law.

The statement of authority should include the company's name as well as the names and signatures of the business partners. It must also state the name and role of each person authorized to execute plans and make decisions on behalf of the company. Make sure you specify the country, state or authority under which your business was formed. This document is legally required for out-of-state businesses in some states.

Obtain a Certificate of Authority

Whether you want to do business in another state to reach more customers, pay less in tax or have lower filing fees, you must first apply for a certificate of authority. Choose the state(s) in which you're interested, access the Secretary of State’s website and fill out an online application form.

Processing times and fees depend on the type of business and vary among states. In general, it takes anywhere from one day to one week to get a certificate of authority. Be aware that you must provide additional documents along with this form. For example, you may need to show that your company is legally compliant and in good standing with its home state.

Obtaining a certificate of authority isn't cheap. However, if you skip the step, you'll end up paying a lot more. Your business could be subject to hefty fines and penalties and may even lose the right to bring a lawsuit to state court. Additionally, you may have to pay back taxes for the period of time in which your company operated within that state without being foreign qualified.