Coordinating a foreign qualification project requires careful planning and a keen attention to detail. Here is a brief overview of the top 5 pitfalls of foreign qualification projects and some tips for how to avoid them.
1. Choosing a name that is not acceptable in the foreign jurisdiction
When a foreign qualification document is submitted for filing, the filing office will check the business name against existing entities in their jurisdiction to be sure the name is not the same or deceptively similar to that of an existing entity. Further, states have certain specific prohibited words that can only be used in a business name with special permission from another governing body – words such as: banking, insurance company, trustee and many more.
- Avoid this pitfall by working with your service provider to perform a name availability check and reservation prior to submitting your client’s document for filing.
2. Failing to maintain good standing in the entity’s home state
An entity that is not in good standing in its home state will not be able to qualify to transact business elsewhere. To return to good standing, the entity will need to resolve all of its outstanding compliance deficiencies, pay all outstanding fees including any penalties and submit paperwork to the state to request a formal reinstatement. Sometimes this process can take two months or more and during that time, the entity will remain in bad standing and will not be able to pursue foreign qualification.
- Avoid this pitfall by helping your clients satisfy all statutory compliance requirements including filing timely annual reports and paying franchise and other taxes promptly to ensure their continued good standing.
3. Providing incorrect or insufficient supporting documents
In most states, a foreign qualification filing must be accompanied by evidence of the entity’s formation in its home state – often a good standing certificate and/or copies of the entity’s formation documents, though specific requirements depend on the state and entity type. A state filing office will reject a qualification filing that does not include the required supporting documents.
- Avoid this pitfall by carefully researching supporting document requirements and working with a service provider you trust to guide the process and review the qualification package before submitting documents to the state for filing.
4. Not checking state processing times
Processing times at state filing offices vary widely. Routine turn-around time for a qualification may be three days in one state and three weeks in another. Even in a given state, staffing shortages, high volumes or technical difficulties can result in slower than normal turn-around for filings. A delayed turn- around could cause big problems if your client is depending on a quick qualification.
- Avoid this pitfall by asking your service provider about state processing times prior to submitting documents and making use of expedited state processing as necessary.
5. Not being aware of proof of filing practices
After filing a qualification, most states return a certified copy of the filed document as proof of filing. This proof is often required for your client to initiate other activities such as securing financing or obtaining a business license in the new state. In some states though, the filing office only returns a notification of filing unless a certified copy is requested at the time of filing; requesting one after the fact can add weeks to the process.
- Avoid this pitfall by asking up front what will be returned as proof of filing and requesting a certified copy at the time of filing if necessary.
CLAS delivers concierge-level service to guide clients through even their most complex foreign qualification projects. With an average tenure that exceeds 20 years, our Service Representatives have a detailed understanding of jurisdictional requirements and a vast network of local agents to help you streamline your qualification projects and avoid pitfalls that can cost your client valuable time and money.
For informational purposes only; content does not constitute legal advice.