“Qualification” is the lawyers’ term for “registration” of a company not formed in New York State. The necessity of obtaining authority to do business in New York –“qualifying”– is designed to place domestic and foreign organizations on an equal footing.
Sooner or later, somebody is going to tell you that you can avoid all those fees that New York charges its businesses by incorporating into another state. Sometimes they’ll tell you that you can do that with an LLC, too, and avoid all those “publication” fees. It’s nonsense; it’s 100% wrong. If you are doing business in New York State, you must take the same steps that a corporation or LLC does that is formed in NY—and pay the same fees.
Organizations formed outside New York are called “foreign,” whether formed in another state or in another country. “Foreign” organizations include for-profit and not-for-profit corporations, limited liability companies, and limited partnerships. “Foreign” organizations are required to register with both the corporation and tax authorities; that requirement is frequently referred to as “qualification”, which is just another term for “authority”.
Organizations get qualified to do business in New York by filing an Application for Authority with the Corporations Division of the Department of State. The Application for Authority is the organization acknowledging that it is doing business in the State. You should register with the Tax & Finance Department too. Note: even if you are registered with Tax & Finance, you must get qualified through the Corporations Division anyway.
Qualification does not subject the foreign company to any regulation it would not be subject to anyway. In other words, if you’re doing business here, you’re supposed to collect & remit taxes, get licenses or permits, and pay income tax. What qualification does is avoid the consequences of doing business without authority: inability to use New York courts, and the risk of being caught and then having to pay arrears in fees, penalties, and taxes. The foreign company doing business here and not qualified may save a little money upfront, but when discovered will wind up paying out much more than it saved.
Of course, the other States have the same requirement. If you’re a New York corporation doing business in New Jersey, you should get qualified in New Jersey. This is generally simple enough until it comes to e-commerce. With online business there comes the question of how much business equals “doing business”– which we’ll discuss in another issue.