Entering New Markets & Legal Requirements for Businessess

Successful business owners often try to take their business to the next level by entering a new market. This can be a great strategy as long as you carefully plan in advance, considering the costs required, your target audience, and your ability to compete with existing businesses in that market. If you are unsure about whether you can cover the costs, this does not mean that you should abandon the plan. Investors and lenders may be eager to supply funding to successful businesses that have a smart expansion strategy. Once you have the financial resources in place and a clear strategy laid out, you will want to make sure that you meet the legal requirements for operating in a new market.

Legal Requirements

You can think of expanding your business to a new state as being similar to starting a new business in that state. In addition to registering the business in the new state, you likely will need to apply for licenses and permits that are parallel to those that you have received in your current state. However, rules in many industries vary from state to state, so you should not necessarily assume that you do not need a certain license or permit in a new state if it is not required in your state. You also should check with any federal agency from which you have received a license to make sure that the license is valid for the expanded form of your business.

A business that operates in a state outside its state of formation may need to go through a process called foreign qualification. This often means filing a Certificate of Authority and a Certificate of Good Standing from your home state. Some states may have more specific filing requirements.

In terms of paying taxes and related annual fees in the new state, you likely will need to follow the same procedures as a business that originates in that state. You may need to collect a sales tax in some states, as long as you have an office, store, or other physical location in the state. Collecting a sales tax is not required if you do not have a physical location in the state but simply sell products online to customers in that state.

Franchises

Franchising may be useful for businesses that can be easily reproduced across many regions rather than being tied to specific characteristics of a certain region. However, setting up a franchise is a complicated process that may require the assistance of an attorney. You can either buy an existing franchise or set up your own franchise. Buying an existing franchise is a simpler option but can be more expensive. Setting up your own franchise may involve a more extensive process of evaluating whether your business suits a franchise model well. You would need to make sure that you can adequately train the franchise operator in how your business works and that you can trust them to handle daily business matters without extensive monitoring. Even if you set up your own franchise, you should be ready to bear significant costs in both money and time.

You may need to meet certain federal and state requirements when you are starting to set up franchises. Other rules at the state level may affect interactions with your franchises as well as your ability to transfer or renew franchises.

Last reviewed October 2024