Certificate of Authority

Learn why obtaining a Certificate of Authority is crucial for LLCs and corporations operating across state lines, ensuring legal and tax compliance. Understand the process, requirements, and potential consequences of operating without one.

By Douglas Wade, Attorney

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Table of Contents

1. Why do you need a certificate of authority?

2. Is a tax ID the same as a certificate of authority?

3. When is a Certificate of Authority required?

4. Sole proprietorships

5. What consequences result from not getting a Certificate of Authority?

6. What details are listed on a Certificate of Authority?

7. What is the cost of a Certificate of Authority?

8. How do you get a Certificate of Authority?

Why do you need a certificate of authority?

It is necessary for you to register your LLC or corporation in the state in which you conduct business. This procedure is often called “foreign qualification.” Filing for a Certificate of Authority is often the first step for a foreign LLC or corporation seeking legal authorization to do business in another state.

You can do business in a state different than the one where you were originally incorporated by presenting a Certificate of Authority. In the majority of states, you need a Certificate of Authority.

It’s crucial to remember that each state may have a different name for the document. It may be referred to by another name, such as a Qualification Certificate, Application for Registration, Application for Authority, or Application to Transact Business.

The requirements and procedure for getting the certificate can differ depending on the jurisdiction, which further complicates matters.

Is a tax ID the same as a certificate of authority?

A Certificate of Authority may have different meanings in various states. Your sales tax ID is contained in a Certificate of Authority. This is granted by the California Tax Department. Your company is authorized to supply and accept the majority of California state sales tax exemption certificates along with the ability to collect sales tax with that certificate.

When is a Certificate of Authority required?

The answer may or may not be obvious depending on whether you satisfy a state’s requirements for “doing business.” The kinds and number of activities that require business registration are governed by different state laws. Generally speaking, states only include those activities on their lists that don’t qualify as conducting business there.

Generally speaking, if you satisfy any of the 5 requirements listed below, you are conducting business in that state and need to get a Certificate of Authority:

You currently operate or intend to operate a physical business in that state, such as a warehouse, an office, a retail space, or a restaurant.

There are workers employed by your company throughout the state.

Your company routinely enters legal contracts in that state.

You meet with customers or clients on a routine basis to conduct business in that state. (Email and phone conversations alone are unlikely to be treated as “doing business.”)

Activities in the state provide a consistent and sizable revenue stream for your company.

By no means is this an exhaustive list. The definition of transacting business varies according to state laws and judicial decisions. It is best to consult an attorney to assess whether your business has to foreign qualify and acquire a Certificate of Authority in a certain state.

Sole proprietorships

Since your company is linked to you as the owner and isn’t registered with any state as a foreign or domestic corporation, you usually do not have to get a Certificate of Authority if you run your company as a sole proprietor.

But remember that the laws are different from state to state. You might need to register your company with a commercial body or with the office of your Secretary of State. Other supervisory requirements will also come into play, including handling municipal and state business licenses, taxes, permits, and other requirements.

What consequences result from not getting a Certificate of Authority?

The foreign state may refuse your company’s request to file a lawsuit, continue litigation, or carry out other legal actions in their court system, which would be the worst consequence of not receiving a Certificate of Authority. For instance, you would not be able to enforce or recoup damages from a partner or client who breaks a contract (although you might defend your company).

States will impose penalties, fines, and back taxes for the period that your business operated without a Certificate of Authority, which is an additional expensive outcome. Specific officials or agents of your company may also be subject to fines, depending on the state in question.

Consulting a corporate compliance lawyer can help ensure your business meets all regulatory requirements and avoids penalties.

What details are listed on a Certificate of Authority?

The specifics may vary. However, the following are usually included:

Name of the company
The incorporation state and date
The registered agent’s name and address in the qualifying state
Officers’ names and addresses (for corporations)
A list of the various stock categories and the number of authorized shares (for corporations)
The signature of a member/manager (for LLCs) or corporate officer, usually the president

Additionally, several states ask for the following extra information:

Name and address of members/managers (for LLCs) or directors (for corporations)
The duration of the LLC or corporation (typically indefinite)
Number of stock shares that have been issued (for corporations)
Financial data, including asset information
A detailed statement of business purpose specifying the kind of activity the organization will conduct in that state

What is the cost of a Certificate of Authority?

The fees for filing a Certificate of Authority differ based on the state and type of entity.

How do you get a Certificate of Authority?

Consult the instructions on the Secretary of State’s website in the place where you intend to conduct business for information on how to apply for a Certificate of Authority or comparable form. Usually, this information can be found under the Foreign LLC or Foreign Corporation category.

Take note that before your company can conduct business in a state other than its home state, it might need to complete additional steps in the international qualifying procedure. Usually, these consist of the following:

Check to see if the company name is taken.
Choose a registered agent in that state.
Get a certificate of good standing or certificate of existence from the state where you now reside.
Submit qualification paperwork.

Have a quick question? We answered nearly 2000 FAQs.

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