If your business has started growing, you may have been thinking of expanding your operations. For many entrepreneurs, that means carrying on the business in other states. Which means you would need to file as a foreign LLC.
What a Foreign LLC Means
One of the things you need to understand is the concept of foreign qualification. What exactly is it?
The term “foreign” can cause confusion for some people. It may sound like something suitable for international business entities. However, that is not the case here.
Foreign qualification refers to the necessary process that companies have to go through if they want to do business in a state other than where they originally formed their business. For example, if you have formed a limited liability company (LLC) in California, you will have to register as a foreign business entity in order to transact business in New York. So in this case, you will be a domestic LLC in California and a foreign LLC in New York.
Why You Need a Foreign LLC
Generally, a company cannot simply transact business in any state it wants. You need to get permission and register your business with the state to do so.
From the point of view of the state, foreign registration is necessary to ensure that the public will have access to basic information about a company it may be dealing with. Included are the legal business name, office address, and the name and address of the company’s registered agent.
Additionally, the qualification will ensure that foreign business entities will not have an unfair advantage over domestic businesses that have tax and reporting obligations. By requiring registration, states are able to impose requirements and obligations on foreign businesses. The qualification will also facilitate service of process by requiring all business entities to maintain a registered agent that the state can easily locate.
When You Need It
Before going through the foreign qualification process, you have to determine if it is the right move for you. If you are planning on transacting business in other states, the answer will be yes.
What you have to do is to find out what transacting business means. That way, you can evaluate your plans and determine if a foreign LLC is right for you.
State laws do not directly discuss what constitutes transacting business, so figuring out what it means can be tricky. However, they often include having a bank account and transacting in interstate commerce as activities that are not considered transacting business in a state.
On the other hand, courts are often the ones that deal with the issue of what constitutes transacting business. Various factors will determine if your business is localized to the extent that requires foreign qualification. Here are some of the questions you have to ask yourself:
- Does your LLC have a physical presence in that state?
- Do you have employees in that state?
- Do you sell products in the state that require you to collect sales taxes?
If your answer to any of those questions is yes, then you will have to foreign qualify. However, that is not a complete list. Each state may have its own criteria, so you will have to check with the appropriate state agency to find out if anything else is necessary. You may also get help from a reliable third-party organization like DoMyLLC.
Consequences of Not Foreign Qualifying
This process may lead to additional expenses. There will be registration fees and ongoing obligations. Some people might think of those as burdensome. However, not foreign qualifying can have more negative implications.
Most states will penalize a company that transacts business without qualification. Additionally, states can deny non-compliant business entities the right to maintain or bring a lawsuit and other legal proceedings in court.
Registering Your LLC
If you want to do business in more than one state, then you will have to register as a foreign LLC in all states other than the place where you formed your company. That means you have to go through a multi-step process.
Every state has its regulations and requirements. But in most cases, the process is similar to what you went through when you first formed your company. You will have to submit formal paperwork, pay the corresponding fees, and complete several steps.
If you think that the whole ordeal is too much for you to handle, you can contact a seasoned company like DoMyLLC. Our team of experts can handle the process for you no matter which state you have to register in.