CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Corporate Registration, Tax Registration and Business License Applications: Which Should Be Done First?

By: Teri Mayor, COGENCY GLOBAL INC. on Mon, Sep 16, 2013

Corporate Registration

Each state has a process to register corporations and limited liability companies from another state to do business in their state. If the company is considered to be doing business, they must file qualification or registration documents with the corporate registry (usually the Secretary of State), such as an Application for Authority.  However, what constitutes “doing business” in a particular state can be a complex legal question. An attorney familiar with the purposes and activities of a company in a particular state needs to advise whether a company needs to file the necessary forms to qualify the entity to do business there.

Registering for Sales Tax Withholding
In addition to registering to do business with the Secretary of State, the company may also need to register for sales tax withholding to carry out its planned activities in the state. In some cases the company may wish to register for sales tax withholding prior to filing the qualification documents. This, however, can often complicate the process and may actually further delay the sales tax registration.  

There are a number of reasons why filing with the corporate registry prior to applying for a sales tax identification number is a good idea:

  1. In a number of states, the sales tax registration form will not be accepted if the company has not been assigned an entity number by the corporate registry.  This number is provided upon qualification. For example, California will not issue a Sales Tax Vendor’s ID number if the application form does not include the entity number assigned by the Secretary of State.
  2. Many states now have an online filing system for Sales Tax Registration. These systems will often not allow you to progress if the entity number field is left blank. While it may be possible to submit a paper form without the entity number and have it be accepted, paper submissions usually take longer to be processed and you risk finding out that the filing won’t be accepted only after weeks have gone by.
  3. The corporate registration process can usually be accomplished fairly quickly. Most states offer an expedited level of service and, if that option is chosen, a company can usually complete the registration process within a couple of days.
  4. Finally, there is a chance that the company’s true name will not be available for use, and the company will be forced to use a fictitious or dba name by which they will be known in a given state.  This problem is usually identified when the company attempts to qualify to do business, as all states have rules regarding name availability, but tax departments do not. If a company does not know about the conflicting entity name and registers for sales tax under a name already in use by another entity, it may lead to confusion and problems, even if the Federal EIN numbers for the companies are different.

Applying for Required Business Licenses
Besides sales tax registration, the company may also be required to apply for a general business license, or a license that relates to their business activities. Sometimes, registration with the corporate registry is a required first step for these licenses. For example, Nevada requires all businesses to obtain a business license.  Corporations and LLCs will first need to file a Qualification to Do Business.  For these types of entities, the state business license is a part of the List of Officers and Directors or Members and Managers required to be filed after qualification.

In other cases, registration is not required for licensure.  An insurance agency or brokerage can usually obtain a non-resident license from the state’s Insurance Department, if they are selling insurance in a particular state, but not located there. Whether or not they must additionally qualify with the Secretary of State depends on the rules of the state and the activities of the company, but it is not a requirement for licensure imposed by the Insurance Department.

Once a company is sure of the activities it will be carrying out in a state, the best approach is to speak with an attorney as to whether those activities will require qualification and tax registration and then determine what other types of licensing are required. For the reasons stated above, it often makes the most sense to take care of the corporate registration first.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Company Formation and Filing Considerations