Have you been thinking of expanding your business? Or considering doing business in other states? Seeing a limited liability company (LLC) grow can be an exciting experience. You can finally start reaping the rewards of all the invested hard work. At the same time, the company can also have new opportunities that will help it grow further. But first you must register as a foreign LLC.
Six Reasons To Form A Foreign LLC
Whether you own a big or small company, knowing when it is time to expand to new markets will help the company become more successful. However, doing so may come with risks. That is why it is necessary to make sure that it is the best move for the business. Here are some of the reasons that make it the right choice:
- Establish a new market. Doing business in other states gives access to new markets while establishing another customer base. Additionally, it can help in reducing the effects of strong competition that happens when there are too many existing competitors in the current market. See to it that there is a need for the offered product or service before attempting to operate in a new location. Whether the company plans on expanding to a new location or is only thinking of selling its products across state lines, foreign qualification is a must.
- There is an increase in the volume of clients. The business may have started on a small scale but after building a strong clientele, you may have to consider an expansion to accommodate the increase in demand for the product or service. This can be done by opening new locations or selling products to people outside of the company’s home state. This way, current customers and potential clients alike can have access to what is offered in a place convenient to them.Another option to handle the increase in the volume of clients is to increase the company’s manpower. In such cases, the company may end up hiring additional employees that are based in an outside state.
- Provide additional services. Sometimes, a business owner realizes that it is time to offer more services related to ones they already have. In such cases, it may be necessary to find other areas with a suitable market. For some businesses, it is enough to have some people in the foreign state to handle the needs of the company. While hiring new employees from that city can help in better understanding the new market, it will also require registration as a foreign business entity.
- Establish the brand of the business. Some companies that started as small businesses can have larger operations eventually. To achieve that, a company may need to reach out to a new target audience from a different location. By setting up shop in other states, this may increase the brand’s presence. More people will know about it, which can help establish the LLC as a reliable company in the industry. Having larger operations may also require the addition of new workers. If the company ends up hiring employees in the foreign state, then it has to register with the state as well.
- Expanding expertise. Being an entrepreneur comes with many learning opportunities. This allows the business owner to continuously gain skills and knowledge that can help grow the business. By choosing to widen the reach of operations in new communities, you may end up gaining greater expertise. Learning from everyone on the team, will allow you to have a fresh perspective and be more creative in finding ways to attract more customers.
- Reduce risks. When it comes to business, it may be impossible to eliminate all risks. However, reducing them or figuring out how to address them. Small companies often work with only a few sectors in the industry and cater to fewer individuals. They are prone to experiencing a severe drop in profit if their clients stop purchasing from them or if some of their partners experience a crisis. With new locations, this can attract new customers and open more earning channels.
Understanding What It Is
Before proceeding to register the business in other states, the business owner will have to understand what a foreign LLC is first. Generally, it refers to an LLC that wants to register in a state different from the one where it was organized.
The first thing that must be done is to figure out if the business will have to foreign qualify. If the LLC will do business in a state beyond its place of formation, it has to undergo a foreign qualification process. Otherwise, its operations will not be legal. For example, let’s say the company originally formed in California. If the owner would like to do business in Ohio, that company will have to foreign qualify in that state.
Here are some questions to ask yourself to determine what constitutes transacting business:
- Do you have or plan on having a physical presence such as an office or retail location in the state?
- Does the company have employees that work in that state?
- Are you or is someone working for the LLC regularly conducting in-person meetings with clients in the state?
- Is a large portion of the LLC’s revenue coming from the state?
- Did you apply for a business license in that state?
Failure To Foreign Qualify
For the state, the foreign qualification of a business entity ensures that the public can access basic information about the company they are or will be dealing with. It is also a way to prevent foreign companies from having an unfair advantage over domestic businesses, which are subject to tax and reporting obligations.
With the said qualification, the state can impose similar requirements on foreign business entities. Additionally, it helps facilitate services of process by requiring ongoing maintenance of a registered agent in the state.
A company that fails to foreign qualify may face certain issues. The situation can lead to penalties and fines. It also inhibits the LLC from settling any legal dispute in a state court. That could potentially cost a business significant amounts of money. Failure to register could also have an impact on the liability assessment of a company.
How To Register A Foreign LLC
Doing business in multiple states comes with many benefits. It can help grow the company and expand the reach of all products or services. However, you have to make sure to go through the right process.
All states require a company to foreign qualify to ensure the legality of its business outside its home state. The steps and requirements may vary depending on the state chosen. There may also be other tax and reporting obligations based on the company’s activities.
If you need help in handling the entire ordeal, hire a reliable third-party organization like DoMyLLC. Our team of experts has experience in ensuring business compliance in all 50 states. You can also get a personalized solution to make sure that our service fits the needs of the foreign LLC.
Business Filing Section