You may have heard the term Certificate of Authority, but what is it? Well, it can refer to a few different things!
I’ll discuss the various types of Certificates of Authority in this article to give you some general information about what they are and when they are typically required. I encourage you to check with your attorney and accountant or tax advisor for legal and tax advice to determine if your business needs any of them.
1. Conducting Business in Another State
Certificate of Authority is known as a foreign qualification when speaking of a business entity getting approved to do business in a state other than the one in which it filed its original formation documents.
For example, if an LLC’s owners initially file Articles of Organization (or a corporation files Articles of Incorporation) in California, it would need to foreign quality (request Certificate of Authority) to conduct business in Nevada.
LLCs and corporations that want to expand operations to multiple states have to apply for a Certificate of Authority in each state where they wish to do business. Businesses must abide by the rules, regulations, tax laws, and compliance requirements within the states where they are foreign qualified.
Different states use different criteria to determine what it means to “conduct business” there. It’s essential to research the rules of the specific state. Generally speaking, many states use the criteria below to determine if a company is conducting business within their jurisdiction:
- The company has a physical location in the state (e.g., office space, store, or warehouse).
- The company has employees living or working in the state.
- The company is liable for paying sales tax on the goods and services it sells in the state.
- The company holds in-person meetings with clients in the state.
A business that matches any of the above criteria might be considered to be conducting business in the state.
How to Apply to Do Business in Other States
The requirements and process for obtaining a Certificate of Authority may also vary depending on the state where a business is foreign qualifying. The process is typically similar from one state to the next. Still, it’s critical to understand a particular state’s rules.
In all states, there’s a form that must be filed with the Secretary of State or another state agency that regulates businesses. The form’s name will depend on the state and the entity type. For example:
- Statement and Designation by Foreign Corporation , Used by corporations foreign qualifying in California
- Application for Authority , Used by corporations foreign qualifying in New York
- Application by Foreign Limited Liability Company for Authorization to Transact Business in Florida , Used by LLCs foreign qualifying in Florida
- Application for Registration for a Nonprofit Corporation or Cooperative Association , Used by nonprofit corporations foreign qualifying in Texas
State fees vary from under $50 to several hundred. Some states may also request a company’s up-to-date Certificate of Good Standing from its home state; certified copies of filed articles, amendments, and other filings filed with the entity’s home state; a signature from the entity’s registered agent; and possibly other documentation.
After the foreign qualification process is complete and the state grants the business approval to operate there, the secretary of state (or comparable office) will issue a certificate. The business should keep that document with its other important registration and compliance records.
Benefits of Obtaining Foreign Qualification
By obtaining a Certificate of Authority a business can expand its company into other states without going through the entire process of forming an LLC or corporation in those jurisdictions. Foreign qualification requires less paperwork and costs less than registering a new company in a state. Also, the document means the business can apply for the necessary licenses and permits in the state and collect, report, and remit taxes in the jurisdiction.
However, the most significant benefit of a Certificate of Authority is that the company is in compliance with the state’s laws. Unlawfully conducting business can lead to all sorts of unpleasant and damaging consequences such as fines, penalties, legal action, and even suspension of the entity.
2. Industry-Related Certificates of Authority
Some states require something called a Certificate of Authority for a specific purpose or to do business in a specific industry.
Tax Certificate of Authority
Some states, such as New York, require business entities to have a Tax Certificate of Authority if they will sell goods or services subject to sales tax. Having this type of business license gives the company the right to collect tax on sales and issue and accept sales tax exemption certificates. Entities that operate a business in more than one location in the state must have a Tax Certificate of Authority for each site. A company must display its Tax Certificate of Authority prominently at all times.
Business owners must complete an application and pay a fee to the state tax agency to obtain the tax certificate and be assigned a sales tax ID number. Tax certificates need to be renewed regularly so that the company stays compliant and remains authorized to collect and remit sales tax.
Insurance Certificate of Authority
Entrepreneurs starting an insurance company must obtain special licensing to do so legally. The Uniform Certificate of Authority Application (UCAA) comes in two varieties for the purposes described below:
- Primary Application , To request a Certificate of Authority to operate an insurance business in the company’s domicile (home) state.
- Expansion Application , To request to expand an insurance company into a state other than the domicile state.
There is also a Corporate Amendments Application for existing insurers that want to make changes to their Certificates of Authority.
Insurance company owners who are unsure about what type of application they should file should verify their requirements with their state’s insurance business licenses, permits, and tax board.
Save Time and Do It Right With CorXec!
Does your business need a Certificate of Authority? I recommend that business owners research the rules of the state where they intend to operate. Moreover, they can benefit immensely from talking with their lawyer and tax advisor to understand what requirements are necessary for their specific situation.
When it comes time to complete and submit your filings, you’ll want to make sure you do it correctly! Using the wrong forms or submitting them with errors can waste time and money. No one needs that!
Fortunately, you can have peace of mind that they’re done accurately by asking CorXec to handle the process. Our filing experts are here to help you no matter which state your business calls home or where it wants to expand its operations.
Contact us today to get started!
Sources:
https://www.sos.ca.gov/business-programs/business-entities/forms#locate-your-form
https://nystax.custhelp.com/app/answers/detail/a_id/1033/~/how-does-a-foreign-corporation-become-authorized-to-do-business-in-new-york
https://www.sos.state.tx.us/corp/forms/302_boc.pdf
https://files.floridados.gov/media/702554/cr2e027.pdf
https://www.naic.org/industry_ucaa.htm
