Compliance's in USA

Query 1: Statutory Requirement of Foreign Corporations in US?

Foreign Corporation, is a term used in United States to describe an existing Corporation, LLC etc, which is incorporated / registered in one state or jurisdiction and conducting business in another state or jurisdiction, where it is not originally incorporated. This term or concept is not only applicable to domestic corporation, which is incorporated in one state and doing business in another state but also to corporations incorporated outside United States and doing business in United States. Foreign Corporation also go by the name of Alien Corporation. All states in US require Foreign Corporation to register with the state before conducting business in the state.

For US Federal Tax Purpose Foreign Corporation means a Corporation, that is not created in United States. IRS treats all Domestic Corporations in the same manner; regardless in which state, within US, it has been incorporated but applies different rules to Corporations incorporated outside US i.e. there is differential tax treatment.

Foreign Corporation must get a Certificate of Authority, from Secretary of State in order to conduct business. A registered office with the registered agent must be maintained by the Foreign Corporation to receive all legal and statutory correspondences.

Query 2: If business is moved interstate i.e. say from Delaware to Texas, would it still qualify as a Foreign Corporation?

Yes, it would still qualify as a Foreign Corporation, as it would be Delaware Incorporation but proposing to conduct business in Texas. “Form 301 - Application for Registration of a Foreign For-Profit Corporation” has to be filed with SOS, Texas.

?Query 3: Does a remote workforce trigger foreign qualification requirements?

The above-mentioned Form i.e. “Form 301 - Application for Registration of a Foreign For-Profit Corporation”, need not be filed with SOS; Texas provided the foreign entity is engage in certain limited activities in the state i.e. conducting some isolated transactions, which is to be completed within 30 days and is non-repetitive / non recurring in nature. In essence, the entity cannot engage in revenue generating activity without doing the said compliance.

Query 4: What operations a Foreign Corporation can carry out even if it has not received the Certificate of Authority?

• Creating / enforcing mortgages
• Conducting activity related to internal governance like Board Meetings
• Maintaining a Bank Account
• Owning Property
• Selling through independent contractors
• Soliciting orders through agents / Employees

Query 5: What is the difference in taxation of Foreign Corporation and Domestic Corporation?

IRS treats all Domestic Corporations in the same manner; regardless in which state, within US, it has been incorporated but applies different rules to Corporations incorporated outside US i.e. there is differential tax treatment.

Foreign Corporation incorporated outside US is subject to withholding tax of 30% on dividends, interest, royalties and certain other income. Tax treaties may reduce or eliminate this tax. This tax applies to a “Dividend Equivalent Amount”, which is Corporations connected earnings and profits for the year Less (-) investments made by the Corporation in US assets.

?Query 6: When does one need to file a DBA? What entities do not require a DBA?

DBA is the acronym / short form of the term “Doing Business As”. Also known as “Fictitious Business Name”, which is term used in Alabama and California OR “Assumed Business Name” which is term used in Texas. DBA application allows registered business to conduct business using Fictitious or Assumed Name in any state throughout US. All kinds of Business i.e. Proprietorship, Partnerships, LLC & Corporations, are allowed to use DBA, if they comply with the legal requirements.

As states in US have the power to frame their own corporate laws, an entity must obtain a DBA application in every state where it transacts business and does not want to use its name. Merely doing a DBA application does not create a separate legal entity; it only adds a legal name to the legally incorporated business. Almost all states in US require businesses using DBA to seek registration with prescribed authority / agency.

Few states provide online registration process for DBA application, while few other prescribe paper filing. Filing fees vary from USD 20 to 50 and is subjected to revision / amendment. DBA proves useful when existing business wants to diversify into a new line of business without using the existing legacy.

Unlike sole proprietorship or general partnerships, corporation or LLC business structures do not need a DBA to operate under an alias, since they have already registered a business entity name that is separate from their personal name as owner.

Query 7: Does creation of a DBA equate to creation of a new entity?

Merely doing a DBA application does not create a separate legal entity; it only adds a legal name to the legally incorporated business.