When a limited liability company (LLC) decides to expand their business to states, they must go through a foreign qualification process. That is because each state has different laws governing business entities. So contrary to what some people think, a foreign LLC is not a company formed outside of the country.
Should A Company Be A Foreign Business LLC?
States only require companies that conduct business to foreign qualify. So what constitutes conducting or transacting business? Ask yourself the following questions:
- Does the LLC have a physical presence in the state, such as an office, shop, or warehouse?
- Did the LLC apply for a business license or permit in the state?
- Does the company often conduct face-to-face meetings with customers in the state?
- Does the LLC gain a substantial amount of revenue from its activities in the state?
- Does the LLC have any employees who are working in the state?
- Does the company sell products requiring sales and use taxes in the state?
If the answer to any of these questions is yes, then chances are that the LLC will need to foreign qualify.
It is also important to note that not all business activities can be considered as transacting business. Here are some exemptions:
- The company only does isolated transactions that end within or in less than 30 days.
- The LLC is only conducting secondary corporate activities such as maintaining corporate records or holding members’ or managers’ meetings.
- It is opening or maintaining a bank account in the state.
Why It Is Important
If a company does any activity that constitutes transacting business, then it has to make sure that it completes the foreign qualification process. Failure to do so can lead to serious consequences. Some of these include the following:
- The business entity will have to pay fines and interest for the period it was conducting business without proper registration.
- The state may require the payment of back taxes for the period the LLC was doing business without foreign qualification.
- The company will not be able to bring a lawsuit in any of the courts in the state.
How To Register
Once an LLC decides to do business in another state, it has to make sure its operations are legal. To do so, it has to register the LLC with the governing state agency.
The whole process may vary from state to state, but there are basic steps similar in all states:
Step 1: Obtain a Certificate of Existence or Good Standing.
Most states require the submission of a Certificate of Existence or Good Standing. This will come from the home state of the LLC, which is where it was originally organized. It serves as proof that the company runs its business in compliance with its home state’s laws and regulations.
For instance, a company organized as an LLC in Ohio and wishes to do business in Nevada. Its home state will be Ohio, and it will have to register as a foreign LLC in Nevada.
Step 2: Designate a registered agent in the state.
While the LLC may already have a registered agent in its home state, it will still need to appoint and maintain one in the state where it plans on operating as a foreign LLC.
The registered agent acts as the point of contact between the LLC and the state. They receive services of process, legal paperwork, and government correspondence on behalf of the LLC. To understand the qualifications, check out our state-specific articles on registered agents.
Step 3: File formal paperwork.
To register an LLC as a foreign business, the company will have to prepare and submit formal paperwork to the governing agency. The form and fees will also vary depending on the state.
What To Do
Some business activities in other states would require an LLC to foreign qualify. A company has to make sure that it properly completes the process and complies with all state obligations. Doing this will prevent unwanted consequences, such as facing fines.
Companies that think they need help with the process can rely on a business filing service company like DoMyLLC. Contact us today to find out how your company can benefit from our services and personalized solutions.