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My cofounder & I just started a Delaware C Corp for an app we're building. The app is comparable to Instagram. We both work from home on our laptops. I work from Connecticut, and he works from Colorado. Do we need to file for Foreign Qualification in either state? If not, we'd like to avoid doing so to save time & money.

Please cite Connecticut & Colorado law to back up your answer.

Note: Feel free to also include the answers for other states.

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The general rule is if you are "doing business" in a state you must qualify as a foreign entity. The "doing business" test comes from the language in most state statutes that is some variation of transacting business language in the Colorado statute. However, as pointed out the statute does not define "doing business," rather it provides some exemptions. The test is a facts and circumstances test and is harder to apply in the case of internet based business with home offices, this is a newer construct that has not been actively tested in the law. I suggest you read/skim the article at the following link, it will provide some helpful examples of what "doing business" means so you can compare against your specific facts. https://ct.wolterskluwer.com/sites/default/files/CT_What-Constitutes-Doing-Business-2016.pdf

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Short answer: Yes, your company will most likely have to file as a foreign entity in both states.

The section of Colorado law you're looking for is 70-90-81 CRS, which says in part:

(1) A foreign entity shall not transact business or conduct activities in this state except in compliance with this part 8 and not until its statement of foreign entity authority is filed in the records of the secretary of state.

Section 2 of the code lays out the exceptions to this requirement. Check those out, but from the limited information you provide I suspect you would be required to file.

Connecticut has essentially the same requirements and exemptions, laid out in 34-235.

  • Thank you. I don't understand how you arrived at your short answer based on the links you provided. I added some more information to the question. What other information do you need? – ma11hew28 Mar 2 '17 at 4:56
  • @matt The part I included in the post says "A foreign entity shall not transact business or conduct activities in this state... until its statement of foreign entity authority is filed in the records of the secretary of state." Transact business or conduct activities includes things like working, running a company, or paying yourself. – Michael Mar 2 '17 at 7:43
  • Where do you see that "transact business or conduct activities" includes things like "working, running a company, or paying yourself"? Also, we are not paying ourselves. Rather, we have each purchased company shares that vest over time. – ma11hew28 Mar 2 '17 at 12:56
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    He does need to see a lawyer. I'm not sure what you mean by "working" and why that would count as conducting business in such a way as requiring foreign registration. There are plenty of activities in the exemption list that would count as "working" and not require registration. It seems to me that unless he's making intrastate transactions within Colorado or Connecticut he wouldn't need to register. I didn't answer the question because there's much more involved including how the company is organized; either register or get a lawyer to explain why you aren't required to do so. – Dave D Mar 2 '17 at 16:48
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    @ohwilleke I was posting from mobile and didn't see the point in removing and reposting over something so trivial. =) – Michael May 5 '17 at 16:33

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