When an insurance agency begins soliciting or transacting business outside its domicile state, it may need to register as a foreign entity with the Secretary of State’s Offices (This can include registering in the jurisdiction where the agency holds its resident insurance license if it’s different from its domicile location). It’s common for insurance professionals to be less familiar with this process than the one for licensing, but even compliance specialists may not be aware of some of the more “esoteric” tasks that certain states require.
Newspaper Publications
Newspaper publications are notices to the public that an entity plans to do business in a particular jurisdiction. It’s a holdover from the time when newspapers played a key role in communicating information to their communities and served as a public record of important events. Currently, four states require certain entities to publish their intention to do business in a newspaper of record. The specific requirements and procedures vary by state, depending on the entity’s domicile status and business structure. Insurance businesses that plan to use a Doing Business As name (DBA) may also need to give public notice of their intent.
Initial Annual Returns
Once a business registers as a foreign entity, it must keep the information on file with the Secretary of State up to date. In many jurisdictions, this is done by submitting an annual or biennial return. A business must continue to file these returns until it withdraws its registration. What filers may not know is that some states also require an initial return. These returns may be due anywhere from 30 to 120 days after the approval of the Certificate of Authority.
Initial Franchise/Foreign Entity Tax Filings
Just as some states require newly registered foreign entities to submit initial annual returns, others require them to file initial foreign entity tax returns. Some governments also impose a franchise tax (also known as a privilege tax). This tax gives a business the right to operate in the jurisdiction and is entirely separate from state taxes. Whether an insurance business needs to pay these taxes depends on the state and the entity’s legal structure.
Certified Copies of Legal Documents/Certificates of Good Standing
Some regulators want foreign entities to provide certified copies of their articles of incorporation/formation as part of the registration process. Again, the entity’s legal structure determines whether it needs to provide these documents in a given state. The articles should always be complete, including any amendments.
Other states may ask a registering entity to provide a certificate of good standing from its domicile state. This document confirms that the business conforms to that jurisdiction’s laws regarding the structure and operation of its legal structure. It also shows that the entity has no outstanding compliance obligations there.
Both types of documents typically have an “expiration date,” anywhere from 30 days to 12 months from the date of issue. The Secretary of State’s Office won’t accept outdated documents since an entity that was in good standing may not be later.
Declaring Shares Information
This last requirement applies to corporations only. If a corporation can issue stock, it needs to provide information about the number of shares authorized and their par value. This is the value of a stock share as set in the corporate charter. It may be much lower than the current market price of the stock. If shares have been issued, the registrant needs to provide the number, class, and series of those shares and the names and mailing addresses of shareholders with more than a minimum interest in the company—usually 5%. Accurate shares information is important because some states base their annual return fees on the number of shares a corporation offers.
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