Your business is growing, and you’re planning an expansion to other states. It’s a good problem to have!
But it’s not quite as simple as choosing another location. Because each state has different rules and requirements for business operations, you may need a “foreign qualification” in each state you plan to do business.
It’s a common misconception that foreign qualification is only for businesses operating outside the U.S. But in this case, “foreign” refers to any business operating in a state that isn’t the state where the LLC was originally formed.
For example, if your LLC is registered in Washington and you are looking to open a second location in Alabama, you may need to complete a foreign qualification in Alabama before you can expand there.
Important Note: If you’d like to save time and have the foreign qualification paperwork taken care of for you, look into a reliable online service like Northwest Registered Agent.
What happens if I fail to foreign qualify before doing business in Alabama?
Foreign qualifying is essentially asking permission to do business in the state of Alabama. And the notion that “it’s easier to ask forgiveness than permission” doesn’t apply here. Failing to foreign qualify before starting business in Alabama yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Is barred from bringing a lawsuit to any of the state’s courts.
- Can be prohibited from doing business by the state.
- May be subject to additional fees and penalties
- Your contracts and agreements made before qualifying may be held void.
That’s a lot on the line. The fee required to foreign qualify your business in Alabama is totally worth maintaining good standing with the state, so before you begin transacting business, make sure to complete your foreign qualification and obtain a Certificate of Authority. Otherwise, you could find yourself without business contracts and facing large penalties.
What is considered “doing business” in Alabama?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Alabama? Consider the following questions.
- Does your company have an office in the state?
- What about a warehouse?
- What about a store?
- Do you have salespeople in the state working on behalf of your company?
If you answered “yes” to any of those questions, you are doing business in Alabama. Generally, if you have a physical presence, or nexus, in the state, you’re considered to be doing business there.
And let’s not forget about taxes. All foreign LLCs are required to pay an Initial Business Privilege Tax Return (Form BPT-IN) within their first 2.5 months of operation, and pay a minimum of $100 (possibly more, depending on your company’s net worth). Then, each year, you’ll have to file a Business Privilege Tax Return (Form PPT) by April 15th. Foreign registering in Alabama lets the state know that you’ll be filing these taxes each year.
If you’re unsure whether or not you need to file for foreign qualification in Alabama, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Alabama?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Alabama. Not every action qualifies as doing business, but the state laws of Alabama do not list any specific exempt activities. However, the following are activities that most states do not consider business transactions:
- Defending or settling a lawsuit in a Alabama court.
- Holding meetings in the state.
- Having a business bank account in the state..
- Selling products or services through independent contractors.
- Securing and collecting certain debts.
- Transacting business in interstate commerce
- Completing a single transaction that doesn’t fall under your typical business dealings.
- Owning real or personal property in Alabama
It’s often safe to assume that performing one or more of the listed activities doesn’t qualify as doing business. But since Alabama law doesn’t state this explicitly, it’s best to either seek legal counsel or simply foreign qualify anyway to be completely sure.
How to Foreign Qualify your LLC in Alabama
Foreign qualification in Alabama is simple if you know where to find and send your forms. If you or your legal counsel has decided to foreign qualify your LLC in Alabama, you can do so by filing an “Foreign LLC Application for Registration” with the Secretary of State’s office via mail or email. Or, to get your paperwork processed quicker, you can file online.
No matter what, your first step in the process is to obtain a name reservation certificate and submit it with your foreign qualification materials. Reserve your LLC name in Alabama online, or by completing and mailing a “Name Reservation Request” form. See our guide on LLC name reservation in Alabama for more information.
Once your business name is reserved, you’re ready for your foreign qualification. Whether you’re filling by mail or online, you’re going to need the following information:
- Your LLC’s full legal name (as registered with the state where it was formed)
- A fictitious name — this is only necessary if your LLC’s legal name is unavailable. Check to see if your name is available by using the Secretary of State’s “Business Entity Search” and remember Alabama’s business name requirements (listed below).
- If using a fictitious name, a statement that it’s been adopted by all LLC members
- Your LLC principal office street address
- The state and date of your LLC formation
- The name of your Alabama registered agent
- The date that your LLC will begin doing business in Alabama
Phew. You’re almost done. Now that you’ve entered all your information, you just need to submit your form. If filing online, your form has already been sent. But to file by mail, send two copies of your completed form – along with other required documents – to:
Alabama Secretary of State, Business Services
P.O. Box 5616
Montgomery, Alabama 36103-5616
For an acknowledgement that your form has been received, include a postage paid, self-addressed envelope.
You also have the option to submit via email by sending your completed form to firstname.lastname@example.org. Don’t forget to fill out the last page with your credit card information.
There is a $150 application fee for filing to foreign qualify by mail and email. Need it a little faster? If you’re filing by mail, you can pay $250 instead to have your form processed 24 hours after receipt. The fee for online filing is $250. You can pay your fees by personal check, money order, or any major credit card. Checks and money orders must be made out to the Alabama Secretary of State.
After your form is in and your fee is paid, sit back, take a deep breath, and pat yourself on the back. Your LLC is foreign qualified and you’re embarking on another chapter in the life of your business.
Name Requirements to Remember
Since you need to reserve your LLC name in Alabama before foreign qualifying, be sure to review the state’s business entity name requirements. Alabama law states that you must register under a name that:
- Includes L.L.C. or LLC
- Excludes any word or phrase that might identify it as a banking, insurance, or government entity
- Hasn’t been used or reserved by another business entity in Alabama.
Need to save time?
Let’s face it, there’s never enough time in the day, especially when you’re running a company. And properly registering your LLC in Alabama involves research and time, time that you could be using to continue growing your business.
If the thought of paperwork, fees and state correspondence makes your head spin, consider using a service like Northwest Registered Agent to foreign qualify your business. Services like Northwest ensure that your forms are filed correctly and on-time, potentially saving you thousands of dollars in penalties, not to mention a bunch of time and stress.
And as a bonus, they include a free registered agent service for one year to keep your business compliant and in good standing with the state of Alabama. For a $100 service fee, they’ll handle that paperwork so you don’t have to.