Your Guide to Foreign Qualification in Texas

Business owners are often drawn by Texas’ pro-business environment, thanks to its thriving economy, business-friendly tax policies, and access to a massive market. However, if your business is already registered in another state and you plan to expand it into Texas, you’ll need to complete the foreign qualification process with the Texas secretary of state.

In this article, we’ll walk you through the process of foreign qualification in Texas step by step and explain how partnering with Harbor Compliance can streamline the journey to expand your business successfully.

Texas Foreign Qualification Explained

Texas foreign qualification is the process of registering your foreign business in Texas while maintaining its original state of incorporation. It allows you to enter contracts with local vendors, secure necessary licenses and permits, open bank accounts, and establish a formal presence in one of the most business-friendly states in the country.

In Texas, foreign qualification is required if your out-of-state business has a physical presence, hires employees, or conducts significant transactions within the state.

The Business Organization Code (BOC) also highlights 16 activities that do not qualify as “doing business” in Texas, some of which include:

• Voting the interest of an entity your foreign entity has acquired
• Maintaining a bank account
• Conducting an isolated transaction and completing it within 30 days
• Transacting business in interstate commerce

To determine whether your foreign entity is considered to be “doing business” in Texas, you can go through the Texas Attorney General Opinions or the comptroller’s Texas Nexus Questionnaire.

How To Foreign Qualify Your Business in Texas

To officially register your foreign entity and obtain a Certificate of Authority to operate in Texas, you must meet specific requirements and prepare the necessary documentation, including:

• Appointing a registered agent based in Texas
• Getting an Employer Identification Number (EIN)
• Providing details about your foreign entity’s jurisdiction of formation and the date of its formation
• Having a Certification of Existence and Statement of Purpose

The Texas secretary of state provides tailored application forms depending on your business structure, whether you’re registering a foreign corporation, LLC, limited partnership, or nonprofit organization. Here’s a breakdown of the step-by-step application process to get your business up and running in Texas:

1. File a business name registration with the secretary of state
2. Fill out the application form
3. Register for taxes and permits

1. File a Business Name Registration With the Secretary of State

When registering to transact business in Texas, a foreign entity must comply with specific naming standards set by the Texas Business Organizations Code (BOC). These standards require that the entity name:

• Includes a recognized term of organization appropriate for the entity type
• Does not contain words or phrases that suggest the entity is engaged in activities it is not authorized to pursue
• Is distinguishable in the Texas secretary of state’s records from any existing domestic or foreign entities

You can check name availability by reviewing the state’s name availability rules or request a preliminary determination by contacting the secretary of state’s office.

If your entity’s legal name does not meet these requirements, you must register under an assumed or fictitious name. By registering, you agree to conduct all business in Texas under that name.

2. Fill Out the Application Form

Once you’ve registered your entity name and gathered the required documents and details from your home state, such as the Certification of Existence or the EIN, follow these steps to foreign qualify your business:

1. Download the appropriate application form based on your entity type:
   1. Corporations—Form 301
   2. Limited liability companies (LLCs)—Form 304
   3. Limited partnerships (LPs)—Form 306
   4. Nonprofit corporations—Form 302
   5. Professional corporations (PCs)—Form 303
   6. Limited liability partnerships (LLPs)—Form 307
2. Input your business details.
3. Pay the registration fee—$750 for businesses and $25 for nonprofit corporations. The registration fee for LLPs is $200 per partner, with a maximum fee of $750.
4. Submit your completed application via fax, mail, or hand delivery, or file online through the Texas SOSDirect website.

3. Register for Taxes

Foreign entities must comply with state tax regulations, including Texas’s state franchise tax and sales tax.

Texas imposes a Sales and Use Tax on the sale, rental, or use of tangible personal property and some services. Businesses must register for and obtain a sales tax permit to engage in these transactions, charge the appropriate sales tax rate, and remit collected taxes to the state.

The Texas Franchise Tax is a privilege tax imposed on businesses operating within Texas. It’s calculated based on the lesser of total revenue times the applicable tax rate or total revenue minus specific deductions. While businesses don’t need to register specifically for the Texas Franchise Tax, they are still subject to it if operating in the state. Entities with revenue less than $2,470,000 are exempt from paying the tax, but must still file an annual report to the Texas Comptroller.

Complexities of Texas Foreign Qualification

Foreign qualifying your business in Texas comes with its share of challenges.

The process involves navigating extensive documentation, including certificates of good standing, formation records, and registered agent details—each with specific guidelines and deadlines to meet. Besides the paperwork, businesses must also comply with obligations like franchise tax filings and securing the proper licenses, both of which require careful attention to detail.

Even minor errors in your application can lead to rejection by the secretary of state, which can delay your expansion timeline. This is why outsourcing your foreign qualification to a third-party service provider like Harbor Compliance is your best option.

Allow Harbor Compliance To Assist With Foreign Qualification

Harbor Compliance’s Foreign Qualification Service streamlines the process of registering your foreign entity in Texas by obtaining the Certificate of Authority in your name. Our team of professionals is well-versed in the Texan regulatory landscape and can offer you personalized support in expanding your intrastate business.

Additionally, our Entity Manager (included in our proprietary Software Suite, which is sold separately) helps you monitor your entities and stay informed about compliance requirements.

Ordering Harbor Compliance’s Foreign Qualification Service

Ordering our Foreign Qualification Service is quick and hassle-free. Here’s how to do it:

1. Go to the Foreign Qualification page.
2. Select Order Online.
3. Fill out details about your business.
4. Review and submit your order.

Additional Services by Harbor Compliance

Curious about what else we offer? Below is a breakdown of our different service offerings:

Simplify Business Expansion With Harbor Compliance’s Foreign Qualification Service

Navigating the foreign qualification in Texas can be time-consuming and requires a thorough understanding of the Texan laws and regulations. Even minor mistakes can prolong the process of setting up your foreign entity in the state, disrupting your business plans.

Outsourcing this tedious process to a professional service provider like Harbor Compliance can free up your time and make the process stress-free. Get our Foreign Qualification Service and let us assist you with obtaining your Certificate of Authority and Certificate of Good Standing so you can launch your foreign business smoothly.

Schedule a demo to understand how our Software Suite keeps you in good standing with your home state and Texas. You can also get an overview of your current standing with our Harbor Compliance Score™ or contact us for personalized support.

To learn more about the foreign qualification requirements across U.S. states, visit our Information Center or explore the table below: