Foreign qualification allows corporations to do interstate business

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Business incorporation with the goal of doing business in different states can use a foreign qualification service that registers the corporation in the new state to assure legal protection.

The term “foreign” doesn’t mean outside the U.S., but rather operating a business in a state different from the one in which it was originally incorporated. Properly qualifying a business not only gains access to new markets, but adheres to state tax laws and guarantees legal status.

The same corporation can be qualified in different states; however, some business owners may want to consider creating a new corporation in each state. This separates the business entities and protects them in the event of bankruptcy or legal action.

On the other hand, creating new corporations in different states requires selling stock and meeting other responsibilities to shareholders, which means more paperwork.

Reducing paperwork will be even more necessary in 2012, when new federal tax codes will require small businesses that purchase more than $600 in materials annually from a single company to submit a 1099 form.

The Washington Post writes that the new law could actually improve operations at many small businesses by encouraging better accounting practices, as well as help the government monitor companies that are not accurately reporting income and expenses.