Cecily Zamora
Businesses are subject to a myriad of laws and regulations, and the legal responsibilities of a company will depend on its location and the nature of the business. Companies are required to comply with the laws of the state(s) in which they operate, and failure to do so can result in fines and penalties. When a company does business outside its home state, it may be required to register or qualify with the new state, triggering even more compliance responsibilities. This can be a complex process, as states vary in their definitions of doing business and the amount and types of activity that trigger business registration. For example, a company with employees in multiple states should comply with the laws of the state(s) where their employees work. Additionally, a company formed outside a particular state may be considered a foreign entity and subject to specific laws and registration requirements. To ensure compliance, businesses should consult with legal experts and carefully consider their operations and presence in different states.
| Characteristics | Values |
|---|---|
| Business registration | If a company does business in a state, it must follow the business registration rules of that state |
| Foreign qualification | A company doing business outside its home state may be required to register or "qualify" with the new state |
| Physical location | Having a physical location in a state may trigger the need for foreign qualification |
| Employees | Having employees in a state may trigger the need for foreign qualification |
| Contracts | Regularly entering into binding contracts in a state may trigger the need for foreign qualification |
| Compliance | Businesses should comply with the laws of the state(s) where their employees work |
| Federal law | Businesses must comply with federal laws and US treaties, which supersede state laws |
| State law | State laws vary significantly, and residents of one state may have more or fewer rights or responsibilities than those of another state |
| State constitution | Each state has a constitution that supersedes all other state laws |
| Corporate governance | The laws that regulate corporate governance are determined by the state of incorporation |
| Shareholder rights | The laws that regulate shareholder rights are determined by the state of incorporation |
| Taxation | Businesses must comply with federal tax obligations and the tax laws of the state(s) in which they operate |
| Advertising | Businesses must comply with marketing and advertising laws |
| Workplace safety | Businesses must comply with workplace health and safety laws |
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What You'll Learn
Foreign qualification
A company must comply with the laws of the state(s) in which it operates. Businesses should comply with the laws of the state(s) where their employees work. This means that if a company has employees in multiple states, it should comply with the laws of each of those states.
To obtain a certificate of authority to conduct business in a new state, a company must first obtain a good standing certificate from its home state and submit it to the new state, along with an application for a certificate of authority. The company must also appoint a registered agent, who will receive legal documents on behalf of the company at a physical address within the state. The company name must also be available in the new state, meaning it is not already in use by another business or deceptively similar to an existing name.
The fees and processing times for foreign qualification vary by state and the type of entity. The average state fee to qualify a business corporation is $230, while the average fee for a limited liability company (LLC) is $190. Nonprofit corporations have an average fee of $100. Processing times also vary, with some states taking up to 5 weeks, while others offer expedited services as fast as 1-2 business days.
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Compliance with state and federal laws
When it comes to state laws, businesses should comply with the laws of the state(s) where their employees work. This means that if a company has employees in multiple states, it needs to adhere to the laws of each of those states. For example, if a company is headquartered in Texas with employees in Texas, California, Arkansas, and Oregon, it must comply with the laws of all four states, even if there is only one employee in each state. This includes compliance with employment laws, unemployment compensation laws, and workers' compensation laws, which are typically based on the state where the work is performed.
Additionally, businesses should be aware of the concept of "foreign" and "domestic" entities. A "foreign" business refers to an entity formed outside the state, while a "domestic" business is one established under the laws of that particular state. When a company does business in a state other than its home state, it may be considered a foreign entity and may need to register or "qualify" in that state. This typically involves obtaining a Certificate of Authority and appointing a registered agent.
At the federal level, most businesses do not have extensive requirements beyond paying federal taxes and complying with specific acts, such as the Affordable Care Act. Federal laws and treaties take precedence over state laws, as per the "Supremacy Clause" in the US Constitution. This means that if a state law conflicts with a federal law, the federal law will prevail. However, states have the right to impose more responsibilities on their residents, and a state law can prohibit something even if federal law permits it.
To ensure compliance with state and federal laws, businesses should consult with legal experts and advisors. They should also be prepared to meet external and internal business compliance requirements, including filing paperwork, paying taxes, and maintaining proper record-keeping.
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Physical location
When it comes to the physical location of a company and compliance with state laws, several factors come into play. Firstly, a company's physical presence in a state, such as having a warehouse, office, store, or restaurant, generally indicates a need to comply with the laws and regulations of that state. This includes registering the business and obtaining necessary licenses and permits.
The definition of "doing business" varies across states, and courts often decide what constitutes doing business on a case-by-case basis. However, having a physical location in a state is a strong indicator that a company may need to register and comply with that state's laws. This is particularly true if the company has a significant revenue stream from activities within that state.
When a company operates in multiple states, it is essential to comply with the laws of each state where its employees work. This can become complex when dealing with remote workforces and employees who live in different states or split their time between onsite and remote work. In such cases, consulting legal experts is advisable to ensure compliance with the relevant state laws.
Additionally, companies should be mindful of the tax landscape in their physical location. State and local governments may offer special tax credits, incentives, and loans for small businesses, which can impact the overall cost of doing business in a particular area. Income tax, sales tax, property tax, and corporate taxes can vary significantly from state to state, so it is crucial to consider these factors when choosing a physical location for a company.
Furthermore, companies should be aware of other federal and state compliance requirements. These may include internal business requirements, such as holding director and shareholder meetings, issuing stock, and maintaining records, as well as external requirements like filing paperwork and paying taxes. Compliance with specific laws and regulations, such as marketing and advertising laws, copyright laws, workplace health and safety laws, and the Americans with Disabilities Act (ADA), is also essential to ensure legal compliance.
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Employees
Wages and Overtime Pay
The Fair Labor Standards Act (FLSA) sets the standards for wages and overtime pay for most private and public employment. Employers are required to pay their employees at least the federal minimum wage and provide overtime pay of one-and-one-half times the regular rate for hours worked beyond the standard workweek. The Act also restricts the working hours of children under the age of 16 and forbids certain dangerous jobs for those under 18.
Leave Entitlements
The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees to provide eligible workers with up to 12 weeks of unpaid, job-protected leave for specific reasons. These reasons include the birth or adoption of a child, or to care for a seriously ill spouse, child, or parent.
Workplace Safety
Whistleblower Protections
Most labor and public safety laws provide whistleblower protections for employees who report violations committed by their employers. Remedies for such violations may include job reinstatement and payment of back wages. Additionally, this legislation bars most employers from using lie detectors on employees, with limited exceptions.
State-Specific Laws
In addition to federal laws, each state may have its own specific employment laws and regulations. These can include wrongful discharge laws, minimum wage requirements, and other job protections. Employees should familiarize themselves with both federal and state laws to understand their rights and protections fully.
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Contracts
For instance, when a company or LLC does business outside its home state, it may be required to register or "qualify" in the new state, which involves obtaining a Certificate of Authority and appointing a registered agent. This process is known as foreign qualification, and failure to comply can result in fines and penalties, limiting the company's ability to bring lawsuits, and putting its limited liability at risk.
Additionally, companies should be aware that regularly entering into binding contracts in another state may be considered "doing business" in that state, triggering the need for foreign qualification and additional compliance responsibilities.
To ensure compliance with state laws, it is recommended to include a choice-of-law provision in employment contracts, specifying that the law of the state where the employee works governs the contract. This approach is generally upheld by courts and provides certainty about which laws apply to employment relationships. However, it is important to note that this can become more complicated if employees work in multiple states, in which case the governing law is likely the state where the employee performs the most substantial part of their work.
Furthermore, companies should be mindful of specific state requirements, such as initial reports and fees after incorporation, and ongoing obligations like complying with marketing, advertising, copyright, workplace poster, health and safety laws, and the Americans with Disabilities Act (ADA).
In summary, companies must follow state laws regarding contracts by complying with registration requirements, including employees in their compliance considerations, and staying up to date with specific state obligations to avoid legal consequences and ensure smooth business operations.
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Frequently asked questions
If a company doesn't follow state laws, it may be subject to fines and penalties, and could be barred from bringing a lawsuit. The company's limited liability could also be at risk.
There are several indications that a company may need to register or "foreign qualify" in another state, including:
- Having a physical location, such as an office or store, in the state.
- Having employees in the state.
- Regularly entering into binding contracts in the state.
The general rule is that companies should comply with the laws of the state(s) where their employees are working. This includes employment laws and laws relative to unemployment compensation and workers' compensation.
In the case of a conflict between state and federal law, the US Constitution's "Supremacy Clause" states that federal laws and US treaties take precedence over state laws. However, states have the right to impose more responsibilities on their residents, and a state law can prohibit something even if federal law permits it.
