Certificate of Authority (Explained: All You Need To Know)

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What is a certificate of authority in simple terms?

What are the essential elements you should know!

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Let me explain to you what certificate of authority means and why it’s important!!

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What Is A Certificate of Authority

In business, a certificate of authority generally refers to a document issued by a state authorizing a foreign company, limited liability company, or other business entity to do business in the identified state.

For example, a company formed in New York will need to file an application for certificate of authority to do business in Rhode Island.

When the state of Rhode Island approves the New York company’s application and issues the certificate of authority, the New York entity will be formally authorized to do business within Rhode Island.

Getting a certificate of authority is the first thing that a business owner or company will need to think about when looking to do business in a state other than the stat where his or her company was originally formed.

Certificate of Authority Definition

How do you define certificate of authority?

In simple terms, the definition of certificate of authority can be summed up as follows:

In other words, the certificate of authority authorizes foreign companies to legally do business in the state that has issued the certificate in question.

Certificate of Authority In New York

Keep in mind that “certificate of authority” can mean different things in different states.

For example, a New York certificate of authority actually refers to a document issued by the New York Tax Department providing your sales tax ID number.

From a corporate perspective, a certificate of authority is mostly known to be a document issued by a state allowing a company incorporated outside its jurisdiction to do business within that state.

Why Is A Certificate of Authority Important

Getting a certificate of authority is very important for companies looking to do business outside the state where they were originally registered.

If your company is growing and you are doing business outside of the state where your company was registered, you will need to make sure to comply with the state laws in the states where you will be doing business.

A certificate of authority is a document issued by a state giving your corporation, LLC, or business entity the right to do business in that state.

Different states have different requirements to issue a certificate of authority.

As a result, it is your responsibility to make sure that you comply with the foreign business registration requirements whenever you are doing business in other states.

If you fail to register your company and get a certificate of authority, you are exposing yourself to important penalties, fines, as well as back taxes.

Your company will also not have the ability to enforce legal rights under contract or statute in the state it conducted business without being duly authorized to do so.

Be sure to read the rest of this article as I will give you more information on when to apply for a certificate of authority and how you can do a quick “sniff test” to see if you should be applying for a certificate or not.

When To Get Certificate of Authority

A certificate of authority will be required when you start doing business in another state.

This now begs the question: what does it mean to do business in another state?

Well, the answer to this is not as clear-cut as you would have hoped.

Every state has different rules and they define “doing business” differently.

As a result, the type of business activity that you are doing or how much business you’re doing will trigger the business registration requirements differ depending on the state.

To give you overall guidance, here are some factors that you can generally expect to trigger business registration obligations:

• You are planning or have already opened a physical establishment in another state (this could be an office space, warehouse, storage space, industrial operation, manufacturing plant, or other)
• You have employees in that state in question
• Your company is planning to sign or regularly signs contracts in that state
• You have customers in that state and you meet with them in person in that state 
• Your company generates revenues from its business operations in that state

Although the requirements to obtain a certificate of authority can be different for every state, you can use the above list as a “sniff test” letting you know if you should dig further on this topic.

If you are a sole proprietorship operating your business under your personal name, you are generally exempt from having to get a certificate of authority.

However, if you do the above sniff test and it appears that you are doing business in another state, it’s important that you consult the registration requirements for that state for sole proprietors just to be sure you are exempt.

Content of A Certificate of Authority

What information do you find in a certificate of authority?

A certificate of authority is a document giving a business entity the right to do business in a particular state.

Although every state has different laws and business registration requirements, here is the information you can generally expect in a certificate of authority:

• Your company name
• Your company’s date of incorporation or formation
• The name and address of your company officers for corporations or the name and address of your company members or managers for LLCs
• Date the certificate was issued

Keep in mind that different states may include other information in their certificate. 

How To Get Certificate of Authority

How do you obtain a certificate of authority?

You have done the verification and you have come to the conclusion that you will be doing business in a state that will require you register for a certificate of authority.

The first step is that you should go on the Secretary of State’s website or equivalent state agency website to look up the certificate of authority registration requirements.

In most cases, you’ll need to look at the “foreign corporation” or “foreign LLC” registration requirements.

Quite often, the process of getting a foreign company authorized to do business in a state is called “foreign qualification”.

The foreign qualification process will be different for every state but expect to satisfy, in most cases, the following requirements:

• Ensure that you obtain a certificate of good standing from the state where your company was originally formed
• Ensure that your company name is available in the state where you want to register (you cannot register if your business name is identical to another local business entity’s name)
• Make sure that you find yourself a registered agent
• Complete the certificate of authority application 
• Pay any applicable certificate of authority fees 

The certificate of authority filing fees can vary by state and depending on the type of company that is being registered (for example, LLC or corporation etc).

Failure To Get A Certificate of Authority

What happens if you fail to get a certificate of authority when you are doing business activities in another state?

The first consequence you should consider if you fail to obtain the legal rights to do business in a foreign state is that your company will be exposed to fines, penalties, and back taxes.

In essence, the state will consider your business activities in that state and levy fines and penalties to your company for having failed to comply with the state laws.

In addition to that, the state will evaluate how much taxes your company should have paid to the state and will levy back taxes for the period of time your company operated its business without legal authority.

Depending on the state, the fines and penalties can even be levied personally against the company directors and officers.

Another consequence of not having the legal right to do business in a state is that you will not be authorized to file a lawsuit to enforce a legal right you may have under statute, contract, or other.

Certificate of Authority Meaning Takeaways 

So there you have it folks!

What does a certificate of authority mean?

How to get a certificate of authority?

Do I need a certificate of authority for my business?

In a nutshell, a certificate of authority is a document issued by a state allowing you to do business in that state.

If your company is expanding operations and you will be opening a physical establishment in another state, you regularly meet clients in person in that state, generate steading and recurring revenues from that state or other, you will need to consider getting a certificate of authority.

This is a matter of compliance with state laws, so it’s something that all business owners and companies should take very seriously.

Every state has different business registration requirements so it’s important that you consult with a qualified business lawyer or contact a service company able to provide you with specialized business registration services.
Now that you know what is a certificate of authority, why it’s important, when you need it, and how to get it, good luck with your business operation expansion!!

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By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn. 

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Understanding Certificate of Authority

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