As mentioned in Formation, while a business can be formed and established in one jurisdiction, a business can operate in many other states. When filing to conduct operations in another jurisdiction with a state's Secretary of State, a business entity files a registration with that government body. This new state is referred to as one of the entity's foreign jursidictions.
An entity is considered as conducting business in a state when:
- The business has a physical presence in the state
- The business often has in-person meetings with clients in the state
- The business has a significant portion of company revenue coming from the state
- The business has employees working in the state
While registering a business is not a legal requirement in every state, if a business does not register or falls out of good standing with the state, the business forfeits many of its protections as a business in that state. These include founders' personal liability protection, legal benefits, and tax benefits.
When registering a business in a foreign jurisdiction, it typically provides information about its location, directors, officers, and financial standing, as well as a series of legal documents capturing additional information about that business.
In addition to the initial state registration, nearly every state requires a regular information report to be filed. Whether annual or biannual, the purposes of a company’s annual report are to provide the state with updated information on the business. If an entity does not file an annual report, the entiy may fall out of good standing with the state, which can be interpreted as a risk signal.
Determining the state registration for businesses is a critical part of due diligence, as the actual status of that business is commonly determined at the state level. Additionally, the IRS does not maintain accurate records on the status of a business entity. As such, EIN verification alone does not signal if a business is active or defunct.
For all businesses verified through Middesk, we conduct searches for that business entity in all 50 states and D.C. This forms a clear picture of the business, where it operates, and its health and relationship with each state in which it operates.
Secretary of State Filings also provide a wealth of information about a business. Middesk will always use registration records to summarize a few key points that you should know including:
|Success||X of Y filings found are Active||Active|
|Warning||X of Y filings have no status provided||Partially Unknown|
|Warning||X of Y filings found are Inactive||Partially Inactive|
|Failure||The business has no Active Secretary of State filings||Inactive|
|Failure||The business has no Secretary of State filings||Not Registered|
|Success||The business is Active in the state of the submitted Office Address||Submitted Active|
|Warning||The submitted state does not make filing status available||Submitted Unknown|
|Failure||The business is Inactive in the state of the submitted Office Address||Submitted Inactive|
|Failure||The business is not registered in the state of the submitted Office Address||Submitted Not Registered|
Updated almost 3 years ago