Founders Series: Important Regulatory Matters

In our most recent “Founders Seriespost, we discussed what steps a founder should take to officially form a corporation, and the ease of doing many of these tasks through our online legal document generation tool, Document Driver®. To round out this discussion about important items for founders to consider, we now examine the key regulatory matters founders should pay attention to during the startup process.

State Foreign Qualifications

Many businesses are located in a state that is different than the state of formation. For instance, a business that is organized under Delaware law may have a place of business in Massachusetts. In such cases, the Delaware entity may be deemed to be transacting business in Massachusetts and would therefore be required to qualify as a foreign entity in Massachusetts. The types of activity requiring registration as a foreign entity and the consequences of failing to do so vary from state to state. Each state’s office of the Secretary of State and the third-party service providers discussed below can be helpful with state foreign qualification questions.

Annual Reports and Franchise Tax Filings

Although the specific requirements vary by state, the state of formation and any states where an entity is registered as a foreign entity likely require an annual report and payment of franchise taxes and fees each year an entity exists. The franchise tax and fee information for the State of Delaware may be found here and, like foreign qualifications, each state’s office of the Secretary of State and the third-party service providers discussed below can be helpful.

Third-Party Service Providers

There are many third party service providers that can assist companies with state foreign qualifications, including filing annual reports and serving as a registered agent, among other matters. Two such frequently used service providers are The Corporation Trust Company or Corporation Service Company.

Business Licenses

Most city, county and state governments require business owners to obtain business licenses and permits. These licenses and permits grant business owners the privilege of legally operating a business within the particular jurisdiction. Fees, requirements and procedures vary by jurisdiction, and failure to have the proper licenses and permits may prevent a business from opening or operating and could result in fines. State and county government offices can be helpful in determining what licenses and permits are required and how such licenses and permits can be obtained.

Employee Identification Number (EIN)

Corporations, LLCs and S-Corps are required to obtain federal Employer Identification Numbers. An EIN may be obtained on the Internal Revenue Service’s website.

In upcoming posts in the Founders Series, we’ll provide more detailed discussions of post-formation considerations affecting your startup company.

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