As with any business that operates in multiple U.S. States, there are unique considerations you must account for as the owner of a multi-state childcare company. In this article, we will provide a general overview of these considerations, so you can be sure all your legal and compliance bases are covered for your multi-state Early Childhood Education business. Read on to find out more.
What Constitutes a Multi-State Childcare Company?
Beth operates a successful childcare company with three locations in New York. Now she wants to expand to a fourth location in Pennsylvania.
Pablo registered his childcare company in the state of Delaware, but he actually operates two daycare locations in his home state of Arkansas.
Dana and her sister-in-law, Marie, opened a childcare center together in New Hampshire. When Marie relocated to Florida with her family, they decided to open a second location in Florida.
In each of these scenarios, the childcare business owner(s) operate a multi-state business.
Whether you own and operate physical childcare centers in more than one state, or your business is registered in one state and physically exists in another state, you too will have to consider the following for your multi-state childcare company.
Business Formation, Registration, and Operation
When considering the best business structure for their childcare business, many owners choose to register as a Limited Liability Company (LLC). An LLC offers personal liability protection, is easy to set up and maintain, and offers potential tax advantages. Whether you operate your childcare company as an LLC or a corporation, you are only allowed to incorporate in one state. However, you can register with other states as a foreign entity. Let’s take a look at how this works.
First, the business owner must choose in which state he or she wants to form the business. Doesn’t it make the most sense to form the business in the state where you live? Yes, but not always. Many business owners who set up an LLC choose to register in a home state that affords the best protection for personal assets and/or offers the best tax rates. For this reason, Delaware, Wyoming, and Nevada are popular choices for incorporation or LLC formation. Remember, you don’t have to live in that state or even do business there, but for the purposes of your company, it will be considered your “home state.”
Next, if the business owner intends to operate the business in multiple states (or even just one state outside of the “home” state), he or she must register the business in those states. This process is known as foreign qualification. In order to register your company in another state, you must submit a Certificate of Authority application. Sometimes it’s also called a Statement and Designation by a Foreign Corporation, depending on the state. This form is available on the appropriate Secretary of State’s website.
Why is foreign qualification necessary? Simply put, this process allows you to legally operate your childcare company in a specific state. A note of caution: you will want to foreign qualify in as few states as possible because you will be responsible to pay state taxes and annual fees, as well as maintain compliance with state business laws and regulations. Basically, as a childcare business owner, you will foreign qualify in all states where you run a childcare center outside of your home state.
Besides business formation and operation, here are a few other things to consider for your multi-state childcare company:
You will need to educate yourself on the state licensing requirements for childcare programs for each state where you operate a childcare center. Compliance with all state licensing regulations is a non-negotiable, and you’ll want to know going in what’s required of you to legally operate a childcare center in that state. As you are well aware, each state will have different licensing requirements for the following:
- Child-to-staff ratio and classroom size
- Supervision of children
- Building safety
- Infectious diseases regulations
- Training requirements for childcare providers…and more
You can search the National Database of Childcare Licensing Regulations to view childcare licensing regulations by state.
State Labor Laws
In addition, you will need to be aware of the state labor laws for each state where you operate a childcare center. Although many states will have similar labor laws, you will want all of your childcare locations to be in compliance with each state’s varying requirements.
One example of differing state labor laws is the area of workplace sexual harassment prevention training. Many states offer specific minimum requirements to ensure your staff members are adequately trained to identify, report, and prevent workplace harassment.
You can learn more about the labor laws of each state where you intend to operate a childcare facility by visiting the state’s website or contacting the state’s labor office.
As you can see, there are several important considerations that owners of multi-state childcare companies must make in order to operate legally and in compliance with differing state regulations.
The experts at Honest Buck Accounting can guide you in the right direction as you consider whether to expand your childcare business into a multi-state operation. Schedule a call with our team and learn how we can help.