For many people, summer is the time to kick back, relax, and enjoy quality time with family and friends. But for accounting professionals, it’s also a good time to reflect on your business goals.
With the frenzy of tax season in the rear-view mirror, you may want to consider how to help your clients expand their businesses. One way to do this is to help them with foreign qualification and domestication. Providing these services not only help your clients’ businesses grow, but they can also help your business grow.
Foreign qualification refers to a business formed in one state that is qualified to operate in another state. Businesses must qualify in each state in which they conduct business. Foreign qualification not only allows businesses to operate in other states, but it also allows them to register in other states without filing formation paperwork in each. It also allows them to open bank accounts in the states in which they conduct business.
Accounting professionals can help their clients with this process in several ways. For starters, and perhaps most important, they can help them determine whether foreign qualification is necessary and whether it will allow for expansion. Although they vary state by state, there are several factors that typically trigger the need for foreign qualification:
Foreign qualification services aren’t complicated; in fact, they include tasks that many accounting professionals perform anyway. These include obtaining a Certificate of Good Standing, serving as a registered agent, registering for payroll taxes, and applying for sales tax permits. Maintaining foreign qualification is much like maintaining compliance in a business’s home state — filing annual reports; filing sales, income, and payroll taxes; and maintaining a registered agent.
Failing to obtain — and maintain — foreign compliance can put your clients at risk of non-compliance, and they could face fines or penalties.
Another service offering that accounting professionals should consider to help their clients grow their business is domestication. Similar to foreign qualification, domestication designates the state in which a company is registered to do business.
Most commonly, businesses seek domestication when they relocate their headquarters from one state to another. But some choose to domesticate to simplify compliance obligations, reduce regulatory burdens, or when merging with other companies.
Domestication can be beneficial to business owners because it allows them to move without dissolving in one state and re-forming in another. This means they can change their home state while keeping their business name, EIN, credit history, and assets. For those streamlining operations, domestication can reduce ongoing costs associated with being registered in a state in which they do not have a solid presence.
It should be noted that not all states allow for domestication, and some only allow certain types of businesses to domesticate (LLCs or Corporations, for example). States that do not allow domestication include Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, Montana, New Mexico, New York, North Carolina, Tennessee, Washington, and West Virginia. In these cases, a business must register for foreign qualification or dissolve the business and form a new one in the new state.
In order to domesticate, a business must be eligible to operate in the new state and be up to date on annual reports and tax obligations. They must also get approval from their Boards of Directors or members and appoint a registered agent. If required, they must file Articles of Domestication and alert all impacted parties (vendors, clients, state agencies) of the changes.
By offering these services, you can help your client with navigating tax implications, complying with requirements in the new state (including annual reporting), and updating financial records, among others.
Your clients may have business needs that extend beyond your current service offerings. Expanding your services to meet these needs adds value to your existing client base and gives you an edge when attracting new clients. Helping clients grow their business can also help you grow your business, whether that means offering services for foreign qualification or domestication. These add tremendous value to your practice and can help ensure you remain competitive.
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