What Does "Doing Business" Mean?
The concept of "doing business" refers primarily to states, since all businesses except sole proprietorships are organized under the laws of a state. An enterprise "does business" in a state or locality. As an example of how states view this concept, the California Franchise Board defines doing business as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit."
Doing business has to do with carrying on the normal activities of a business entity, whether it is a corporation, LLC, partnership, or sole proprietorship, for the following purposes:
- Jurisdiction in legal matters. If an LLC is involved in a lawsuit, for example, as a result of doing business in that state, the lawsuit may be considered to be under the jurisdiction of that state's court system.
- Assessment of taxes, including sales taxes, on entities with a tax nexus (presence) in that state. The concept of tax nexus is more specific than the general concept of "doing business."
'Doing Business' Is Not the Same as 'Doing Business As'
The concept of "doing business" is not the same as a fictitious name ("doing business as") registration with your county.
Activities Involved With Doing Business
In general, a company can do business in a state if it engages in one or more of these types of business activities:
- Having a bank account in the state
- Selling in the state through a distributor, an agent, or a manufacturer's representative
- Maintaining an office, manufacturing or distribution facility, or retail store in the state
- Owning real property or personal property in the state
- Transacting business or holding meetings in the state
A business entity may be doing business in a state as either a domestic (in-state) or a foreign (out of state) business entity. For example, if the primary business location for your LLC is in Illinois, you would register as an LLC (assuming "domestic") in Illinois, and if you also have a business presence in Iowa, you would register as a foreign LLC in Iowa.
Registering in a State Where You Do Business
Sole proprietorships are not required to register with a state unless the business wants to formally register its business name. A sole proprietorship, however, is still considered to be doing business in the state for legal and tax purposes. A sole proprietorship doing business in Michigan, for example, must pay Michigan income tax and the business must collect, report, and pay Michigan sales taxes.
All other business types, including different types of partnerships, LLCs, and corporations, must apply to do business in a state (or more than one state). The application may be called Articles of Incorporation (for a corporation), or Articles of Organization (for an LLC) or some other name for a partnership.
Why Register a Business With a State
In some states, like New York, a corporation wishing to do business in the state must file an "application for authority," which serves two purposes:
- The business acknowledges that it considers itself to be doing business in that state and
- The filing information provides for a way to facilitate the serving of process, by listing the registered agent or another person.