Corporate Practice Perspectives Webinar Series: Understanding Qualification Requirements

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Annie: Hello, everyone, and welcome to today's webinar, "Corporate Practice Perspectives Series: Understanding Qualification Requirements." My name is Annie Triboletti. I will be your moderator for our session today.

I'd like to take a moment to introduce our presenters, Helena Ledic and Miranda Groom. Helena is an associate general counsel for CSC in the Chicago office. She's a business attorney with experience in negotiating commercial contracts, corporate governance, compliance, security, and privacy. Helena speaks on best practices regarding corporate and financial filings. Miranda is a team leader of client service in our Salem, Oregon office at CSC. Miranda leads a team of vendor management specialists who maintain the integrity of our business license knowledge. Miranda also helps with the oversight of international registered agent management. So with that, I would like to welcome in Miranda and Helena.

Miranda: Thank you, Annie I appreciate that. Hello, everyone. I'm happy to be here today.

Helena: Hi, everybody. This is Helena. Very pleased to be speaking with all of you today. So why don't we jump forward now and let's learn a little bit about CSC.

At CSC, we like to say that we're the business behind business. We are the world's leading provider of business administration and compliance solutions and provide service and technology solutions for every phase of the business and investment life cycle. We help to form entities, maintain compliance, execute secured transactions, and support real estate, M&A, and other corporate transactions.

We're located on 5 continents, with more than 8,000 employees and have expertise in 140 jurisdictions. And we've been privately held and managed for 125 years under common ownership. We work with more than 90% of the Fortune 500 and Best Global Brands and more than 10,000 law firms. So we are definitely the business behind business.

And then just to give you a little bit of an idea of what our global footprint is here is you can see that we have 70 offices across the world, in the Americas, EMEA, and then also in Asia. Our headquarters are where the star is over there with Wilmington, Delaware. And you can see Miranda is actually located in Oregon, where we have an office in Salem. There you go. She's doing her Oregon love. And I'm located in Chicago, and we have three offices in Illinois. So there you go.

So we're going to talk a little bit about what actually triggers a qualification. We're going to talk about those considerations that come in there. We'll talk about a few different states where we see some common challenges with them, so the biggest states for qualifications. And then we'll go through some additional resources and, of course, Q&A session at the end. So feel free to pop things into the widget and we will be able to answer your questions at the end.

So with that, let's just jump forward up to what triggers qualification. So over here is . . . Miranda, why don't you take it away here?

Miranda: Yeah. Well, first, let's define what is a qualification, right? It's a domestic corporation that's incorporated in a particular state, that now wants to do business in another state. In all cases this is going to require an additional filing, including payment of taxes or fees with that respective state authority.

Let's quickly go through some activities that generally do not require qualification. So defending an entity in litigation. Holding board or director meetings and other internal activities in a foreign state. Maintaining a bank account. Maintaining offices or agencies for the transfer of securities. Selling through independent contractors. Soliciting orders by mail or other channels. Creating or acquiring indebtedness and securing or collecting debts. Owning real or personal property. Isolated transactions completed within 30 days. Now some states will extend that time period. Interstate commerce, and responding to state-declared emergencies.

Helena: So can we just go back for one second, Miranda?

Miranda: Absolutely.

Helena: What I just wanted to make sure that for the audience to know is those letters that we have there bolded in red at the top — that generally do not require qualification. There are some states where there are some exceptions to these. So you really do need to in there and double-check on these things. And remember this is always evolving. And just because something maybe didn't require a qualification a few years ago, that may not be the case anymore.

Miranda: Well said.

Helena: Yes. So let's talk a little bit about the activities that generally do require a qualification over here. And so, for example, if you happen to be practicing as a certified public accountant, that is going to require a qualification in a given state. So advertising purposes. Banking, now we have over here Alabama, Delaware, Ohio, and Oklahoma are silent. But that is something that is really changing, and that's really one to double-check. If you are doing construction, you generally have to be qualified within a state, unless you have one of those state-declared emergencies, perhaps maybe something like hurricanes in one of the southern states, something like that. Sales within a state, third-party sales. And then, of course, if you're merging with another entity that already happens to be qualified, that's going to require that qualification over there.

So Miranda, why don't you talk about what happens if you fail to qualify, because this can get scary for folks here?

Miranda: Yeah, absolutely. And we have four listed here, but this is certainly not all-inclusive.

So the first here we have noted is access to courts for civil matters. So your ability to defend or initiate a case can be limited, and that can lead to operational setbacks. Additionally, there are monetary penalties on the entity as well as individuals. So your directors, your officers, and even the agent can be held responsible and may also include criminal misdemeanors. And then if you are doing business in a particular municipality, a state, a county, city, town, you'll need to have a business license. And if you are not qualified with the state, those municipalities will not issue you a business license.

Helena: So let's now talk about some of the considerations that we have for qualifications. So Miranda, why don't you start us off over here?

Miranda: Yeah, absolutely. Let's take a look at the three things we have here. So we've got name availability, name registration, and name reservation. What is the difference, right?

So what CSC can do is we can go around and check the name to make sure it's available by calling that state. We also use databases. But that does not guarantee that your name will be available when you go to qualify. Some things that you can do to ensure that your name is available is to file a name registration. Now this is a very limited service offered, and it's important to note that Delaware is one of those states who does not offer it. But it is a filing where you can protect your name for one year.

The more common that we see used is the name reservation. This is a filing that is available in all states, including the District of Columbia. The reservation can last anywhere from 30 days up to 1 year. Sometimes you can renew it prior to it expiring. Other times, you have to wait for it to expire and then jump in there and make sure that your name is available again so that you can renew it.

Helena: So let's talk a little bit about name availability. Because we're talking qualification, we already know that we have that entity out there. And for purposes today, why don't we just say that we're got ABC LLC. And let's say that the domestic state it was formed is Delaware. And let's say that now what we want to do is we want to expand out and qualify into other states. Well, what we have to do, again, is we have to check again to see whether or not that name is in fact available.

And so in my example, ABC LLC, clearly that's a little bit off there. But depending on the name that you were selecting, that name may not be available. And as Miranda said, CSC can help you out and double-check on that.

But then there are also restrictions on words. So those words are typically "bank," "finance," "trust." Words like that are typically restricted in virtually every single state. So if you have a word like that perhaps in your home state, and ABC LLC is not exactly the great example of that, but there may be some kind of a word in there that you're using in that home domestic state that isn't available elsewhere. And so that's just something to kind of take into account. Different states, different rules.

Miranda and I, we talked about this. For example, the word "Razorbacks" in Arkansas is not permitted, unless you're associated with the university. My favorite example is the word "Disney" is not allowed in Florida, unless you're associated with Walt Disney World. You might be able to use that elsewhere. But if you were going to Florida to qualify, that's not going to work.

And no matter what, we're not talking in any instance over here about possible infringement issues. So that Disney example, I mean, there would probably likely be a trademark issue over there. But just to keep that in mind. And then, of course, you have to have that corporate indicator also.

Miranda: But real quick, Helena, let me just mention. When you brought up the words like "bank," "finance," "credit union," and "insurance," it's important to remember that there's a difference between restricted and prohibited.

Helena: Right.

Miranda: So some of those are prohibited, and you cannot use those in the name or the purpose. Some of those are just what we call restricted. And so you can make a plea to those different agencies, whether it's the Department of Finance or the Department of Insurance, and you can let them know kind of what your business purpose is, and they'll decide whether or not it's okay for you to use that name. And they usually issue a clearance letter of sorts, that you will then present with your qualification. In some states, CSC can assist with getting that clearance letter. I just wanted to make sure I brought that up.

Helena: That is a great point is that if you get the approval of that state commissioner's office, that you might be able to use that word. Great.

Miranda: Yeah, absolutely.

Helena: So the other thing is, continuing on in the vein of talking about name availability, and again you probably went through this when you formed your original entity. You need to make sure that that name is not going to be deceptively similar to another name in the state. It's got to be distinguishable in the secretary of state records. Same thing again happens with a qualification going to another state. And again, bringing up over here the possible trademark, that just because it's okay in one state, may not be okay in another state over there. All right.

So let's talk about the name availability if it's not available. So Miranda, what is it that you do if you really, really want to have a word or a name, but it's been taken?

Miranda: Well, there are a few things that CSC can assist you with. And previously, when I spoke, I said that we'll call the state, or we'll check a database. One service that we'll also offer is we'll let you know, like who is that conflicting entity. What date were they incorporated? Who is their agent? And does that state allow you to or do they accept a consent for use of the name from the conflicting entity? Or do you have to force your name and use a forced fictitious name?

Let's quickly go through, well, not quickly, but let's talk a little bit first about that first option — consent to use a name. So very few states actually allow this, and even fewer have a form that you can fill out and complete.

Helena: So a specific form that is available for that process.

Miranda: Right.

Helena: Yeah.

Miranda: Right. And if there is no form available, but it is allowed, you will have to reach out to the conflicting entity. And that's why it's important to find out who are they, how do we get a hold of them. You can ask that conflicting entity to draft something on their company letterhead that says they give permission for you to use the name. And it needs to be signed by either a member or manager if it's an LLC, an officer if it's a corporation, a partner if it's a partnership.

But more often than not, what I see happening is that people will have to force their name, and they have to use a forced fictitious name. And each state is different in those requirements of how you are allowed to force your name.

So an couple examples here for you. In Oregon, they're very specific. They really only have one way to do it. You have to keep your name. You can't change it. You can't move words around. At the very end, you would add a corporation of Delaware or LLC of Tennessee. So you have to restate the entity indicator as well as what is your home state from. CSC has a forced name in California. We use the name Corporation Service Company will be doing business as CSC Lawyers Incorporating Service. So it's important to also know what each state requirement is and how you can force that name.

Now that we have found that the name is available, or let's say that you reserved it and you're ready to move forward, the next step is knowing what supporting documents are needed. So in most cases, you're going to need to present a certificate of good standing. That's called something different in every state. So in Oregon, again I'll keep using that Oregon example because I'm in Oregon, it's called a certificate of existence. In some states, it's called a certificate of authority. What's important to remember is that that certificate, no matter what it's called or where it's from, it needs to have the status of that entity.

In some other cases, along with that good standing, you're going to be asked to provide a certified copy of your original articles in your home state. Some of those notable states that ask for that are Arizona, Illinois, Nevada, and Virginia. And not every state offers an expedite service in issuing those certified copies. So it's not quick sometimes.

And there are some things that can even slow it down even more. Let's say you have a really old entity. And I say old because I'm going to use the 1970s as an example, and that's the decade I was born. So yeah, old, oh no, I don't know how to feel about that. But anyways, let's say in New York you're from the '70s. Well, a lot of their images are not digitized prior to 2001. So what that process looks like is they have to reach out to their archives. They then find those on paper or microfiche.

Helena: The original document or on microfiche.

Miranda: That original document.

Helena: Right.

Miranda: And then they send it to a third-party vendor ,who then digitizes it and then returns it to the state. So I have seen sometimes this process can take three to four weeks, even longer in some scenarios. And that's not something that CSC really can help speed along. As I stated, you've got all these different players in the game that have to try to find these. So when you're thinking about qualifying not only the name and making sure it's available and that you have the consent or you know what forced name you're going to use, but allowing time to gather these supporting documents is also a very important step in the game.

Helena: So Miranda, let's go back for one second.

Miranda: Oh, yeah.

Helena: So when we were prepping this, and now when you spoke, you used the example of the 1970s. But actually you even said that it's much later than that.

Miranda: Yeah.

Helena: That there are places where things aren't even digitized before 2001 you said.

Miranda: Right, right. New York is a great example of that. New York is a big state, so we have a lot of businesses doing business in New York. So if that's your home state and you've been doing business prior to 2001, you might run into that issue of needing to find your images in archive.

Helena: So build in plenty of time in here when you're working on this, especially with older entities, right?

Miranda: Absolutely.

Helena: All right. So the next slide that we want to jump into is what else that you are going to need as part of the qualification process, and that is your registered agent. And remarkably that's where CSC got its start, 125 years ago, was being a registered agent. But those foreign entities also have to have a registered agent. And that registered agent typically has to be available during business hours, business days, and they are able to receive and forward process. They have to have that physical presence in that jurisdiction. And they have to provide compliance. The registered agent can help out with compliance services, such as annual reports. They help out with other communications in there. But again, it has to be not from your domestic home state. It has to be in the state that you happen to be qualified. That's where you're going to need that registered agent.

Miranda: Yeah.

Helena: So let's now jump into some of our common challenges. So I mentioned that, at the beginning, some of the states where you might end up having some issues in the qualification process.

And so let's talk about Delaware first, and what are those best practices with Delaware, where you might have your filing, your qualification filing rejected. And that is if your execution date is left blank. There are inconsistent entity names in filings. Maybe something is plural versus not, or maybe somebody makes a mistake. When I used the example of ABC LLC and maybe they put down Corp. by mistake on there. If your document happens to be not signed or an inconsistent use of that registered agent's name or address.

And another CSC example here is we moved our headquarters building nearly eight years ago. And Miranda says and our Delaware team will tell you they still somewhat regularly see documents where people have filled something out with our old address, not with our new address. So that's one area where you could get in trouble with in Delaware.

So another one to talk about is New York over here. So if you're doing your qualifications for New York and you're filling out your paperwork, you've got to include that county. So if you're looking at perhaps maybe an Upstate New York area and you're not exactly sure what the county is, you leave it blank. And if you don't remember to go and get that completed before you submit that paperwork, your filing is going to be rejected. Your service of process address has to be included, and it has to be in the U.S. The naming capacity of the signor has to be typed below the signature line. The registered agent, you can't do a "care of." So for example, ABC LLC c/o CSC registered agent, that won't work in New York. That's not allowed in New York. And then, of course, you also have to include the backer, which is something special in New York. And then the entity name has to end up being on that backer.

So why don't we now jump into the New York publication requirement, and Miranda can fill you in a little bit more on that.

Miranda: Yeah. This is probably the trickiest part about New York is if you're an LLC or an LP, you have to publish, and you have 120 days to get that done. CSC can help you with that. We can get most of the information off of those articles that were filed, the entity name, the date of articles of organization, the county, as Helena spoke about, would have been on that form, the principal place of business, the purpose, and the name of the agent. So once this publication has now run its course, there is an additional filing that you have to then return to the Secretary of State. It's called a certificate of publication. And you have to include the affidavits from the newspaper that says that you did this.

CSC, as a convenience to our customers, what we'll do is we can prepare that certificate of publication. We can conform the signature as long as we know who the signer is. And we will take that along with those affidavits and finalize that last step in New York by submitting that back to the Secretary of State.

Miranda: Let's talk also about Illinois, and you'll see there are a lot of bullets here. So Helena and I went back and forth. We're like, "Do we really need to say all of this?"

Helena: I lost. Miranda won.

Miranda: Yeah. Well, and the reason is valid, right? So we've been talking about all these steps to get there. Wouldn't it be just terrible if you get all the way here and you forget to fill something out on the form and it gets rejected? So these are some important things to remember about Illinois. Oh, and also Illinois is a very high penalty state. A coworker of mine said that she just saw a check cut for over a million dollars for an entity that was in non-compliance.

Helena: I actually heard of that. I was on a call where somebody mentioned a $6 million check for Illinois.

Miranda: Oh, ouch.

Helena: Yes.

Miranda: So yeah, so the form, the last step here, let's not mess that up. So some of the highlighted items we have here is make sure that that you have a principal place of business on the form, and that cannot be CSC's address. This is true in all 50 states. We do not allow that. The title of the signor must be included on the form. The consideration cannot be left blank. And what that is a question on the form that's asking have you been doing business prior. So don't leave that blank. Answer that one.

There are also some financial questions. They're going to ask you about assets and liabilities. And you think, "I'm just qualifying. I don't have any." So you naturally want to leave it blank. Well, you cannot do that. You need to put zeros in those fields so they know you've read them and that you're answering them.

There's also another spot on the form that asks how many other states are you qualified in. And the spot on the form is about that big. I kid you not. It's really small. And you think, "Oh, man, Illinois is the 49th state. I really have to list all of these states out?" Well, you do. And if you don't, your form will get rejected.

And this is also a state where we spoke about earlier that is going to require you to provide certified copies. And the reason is they're going to look at those copies from your home state, and they're going to make sure that the stock information that you're saying on your form matches those copies.

And then last, but certainly not least, they do allow you to use a general purpose. But you do need to use appropriate language, and it needs to say "any and all lawful."

So moving on to another complicated state, and I'll say that about California in terms of the fact that we've been talking about forms, completing these forms. Well, California has moved to an online platform that is now mandatory file online. So when you provide a self-drafted document, that's the only type of document that they will accept over the counter. And in order for it to be accepted, you actually have to have a wet signature on that document, meaning you've got to have a pen, you have to sign your name. You can't use these fancy tools in Adobe, where you can choose your signature. You can't use Docusign. You can't use any sort of electronic format of a signature. It has to be wet signed. And if you deliver that through email in a PDF, we can print that and we can deliver it to the state, as long as it's self-drafted.

Now if you bring a state form to CSC because those forms are still available, they still have them out there so that you could have a guide of what's required to file online. So if you've completed that and you present that to CSC, we're going to actually manually rekey that into the Secretary of State's online portal. And one thing about their online portal is that their purpose has a 50-character limit. So we can't get long and lengthy with that purpose. We only have a 50-character limit.

Another thing mentioned earlier is we actually have a forced name in California. So if you're naming CSC as agent, you need to get that right and that it's Corporation Service Company which will do business in California as CSC Lawyers Incorporating Service.

And then, again, last but not least is the statement of information. And that is a filing that's due 90 days after you've qualified. That form does have a new question on there. It is asking you if any of your officers or directors have had a labor judgment. You can't skip over that. You have to answer it, Yes or No.

Helena: So Miranda, let me stop you over here on this because you and I, we spent some time talking about this when we were preparing. So it's really important for the audience to know that if you print off a form in California and that form is filled out and you bring it to CSC, or for that matter any other company like CSC, any other service provider, that has to still then be rekeyed in. Right?

Miranda: Yes, absolutely.

Helena: You cannot submit the form. It's only the truly documents that you might self-draft that you are doing yourself inside your word processing, right?

Miranda: Yeah. Yep, that's exactly right.

Helena: Okay. All right. Very confusing. All right. Oh, we jumped a little bit ahead.

Miranda: Sorry about that.

Helena: See Miranda and I were doing dueling clicks over here. So we've got over here, as mentioned to you, some of the additional resources that we have available for CSC customers and non-customers. So let me just jump into those.

So if you happen to be a CSC customer, you can get forms online from CSC Global. They are available to you. You can choose what kind of entity, the type of state, what's the action that you're trying to take over here, and you have the most recent forms. We update our forms every single day over there.

The other thing is that we have something that is called the procedural summaries. So remember earlier, when I talked about Disney being an example of a prohibited word and then we talked about maybe words like "bank," "finance," words like that might be prohibited or could be allowed, as Miranda pointed out. CSC has what's called procedural summaries, and those are online. They're only available to our customers. But that will list things such as your filing fees. The forms will be there, prohibited words, different things like that. If there's a publication requirement. New York is not the only state. A couple others do. But it'll list that on there, and those are available to our customers.