By: Cristina N. Hyde, JD
Campanella Law Office is dedicated to supporting our small business clients in many ways. While there is always a new law or new piece of legislation to highlight, occasionally it is helpful to take a moment to refocus on business basics such as determining when a business should register to “do business” in a particular state.
First, upon formation, your business becomes its own legal entity. How and where to register that entity will depend on its structure and location. As a rule, most businesses should be registered with the governing agency tasked to keep track of registrations in the state where the business was formed (usually the Secretary of State’s office).
Then, with respect to the growth of on-line sales and virtual communications, business owners must consider whether they might also need to register in another state. Failing to do so could expose a business owner to hefty fees and penalties as well as possible criminal liability.
The key to the registration inquiry is whether a business is “doing business” in a particular state. The “doing business” analysis is an extremely fact-sensitive legal analysis. Most recently addressed by the United States Supreme Court in South Dakota v. Wayfair a divided court diminished the value of “physical presence” as a factor in that analysis. Instead, the Court concluded that “substantial virtual connections” need to be considered and that “day-to-day modern e-commerce does not align analytically with a test that relies on physical presence.”
Although rules can differ based on jurisdiction, in addition to physical presence within the state, other typical considerations are:
- Whether the business holds meetings in the state at issue.
- Whether the business is providing services in the state at issue.
- Whether the business has employees in the state at issue.
- The amount of revenue generated for the business in the state at issue.
- Whether the business holds property in the state at issue.
- Whether the business has entered binding contracts in the state at issue.
Ultimately, there is no universal rule to this analysis. Therefore, it is strongly recommended that a licensed business attorney assist with the determination. Meanwhile, good resources include the U.S. Small Business Administration and, in New Jersey, https://business.nj.gov/.
If you are ready to register a new business or need assistance determining if multi-state registration is required, contact us.