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 Arizona, you may need to complete a foreign qualification in Arizona 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 Arizona?
Foreign qualifying is essentially asking permission to do business in the state of Arizona. And the notion that “it’s easier to ask forgiveness than permission” doesn’t apply here. Failing to foreign qualify before starting business in Arizona yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will no longer be allowed to maintain an action, lawsuit, or proceeding in a Arizona court. Not only that, but if you’re caught operating in Arizona while unregistered, the attorney general can stop you from doing business altogether. All things considered, it’s simply not worth the risk.
Find more detail about the possible penalties in the Arizona Revised Statutes § 29-809.
What is considered “doing business” in Arizona?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Arizona? Unfortunately, Arizona state law doesn’t give specific guidelines on this. However you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has a physical presence in the state such as stores, offices, or warehouses.
- Salespersons or other company representatives are operating in the state on behalf of your LLC.
Foreign qualification plays a role in taxes too. Most businesses operating in Arizona are required to pay a Transaction Privilege Tax, or a tax for the privilege of doing business in the state. When you foreign qualify your business, it notifies the state that you will be filing taxes as an LLC there. Learn more about the Transaction Privilege Tax on Arizona’s Department of Revenue website.
If you’re unsure whether or not you need to file for foreign qualification in Arizona, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Arizona?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Arizona. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or effecting a settlement or suit in an Arizona court.
- Holding meetings other internal affairs proceedings.
- Maintaining a bank account.
- Selling products or services through independent contractors.
- Soliciting or receiving orders outside the state, or accepting orders outside the state and filling them by shipping goods into the state.
- Securing and collecting debts.
- Transacting business in interstate commerce
- Conducting a single transaction (within a period of 30 days) that doesn’t fall into your typical business operations.
See anything your LLC does in Arizona? A few things? If those are your only business actions in the state, you’re likely exempt from foreign qualifying. Still, it’s usually wise to seek legal counsel, just to be sure.
For more information on these exemptions, refer back to the Arizona Revised Statutes § 29-809.
How to Foreign Qualify your LLC in Arizona
Foreign qualification in Arizona 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 Arizona, your task is to file an Application for Registration of Foreign LLC, along with any other accompanying documents. The Arizona Corporation Commission website offers detailed instructions on how to file this form, and you can find them here.
Unfortunately, there’s no online submission option for this application. Your options are to submit it by mail or in person. Either way, you’ll need to download it from the A.C.C. forms page.
After completing your form, don’t send it just yet! To successfully process your application, the state will also need:
- A certificate of existence or good standing from the state where your LLC was formed. This certificate must not be dated more than 60 days before you submit it.
- A Statutory Agent Acceptance form, signed by your statutory agent.
- An approval letter from the Arizona Department of Financial Institutions only if your LLC name contains one of the following words: Bank, Banker, Banking, Banc, Banco, Banque, Credit Union, Deposit, Savings Association, Building Association, Savings and Loan Association, Building and Loan Association, Savings Bank, Thrift, Trust, or Trust Company.
You’ve gathered all your documents, but don’t forget the fee. Foreign qualification in Arizona costs $150. If you’re wondering how long it will take, the A.C.C. updates processing times on their eCorp page weekly. Just click “Processing Times” at the bottom of the page. You can always expedite the process by paying an additional $35.
Whether filing by mail or in person, submit your application to:
Arizona Corporation Commission
1300 W. Washington St.
Phoenix, Arizona 85007
By mail, the state will only accept checks or money orders. In person, you can pay via check, cash, money order, or credit card.
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
In all the excitement of expanding your business to a new state, be sure that you follow Arizona’s business name requirements. Your LLC must:
- Contain the words “limited liability company” or “limited company,” or one of the abbreviations L.L.C., L.C., LLC, or LC.
- Not contain the words “association”, “corporation”, “incorporated”, or any abbreviations thereof.
- Be distinguishable from all other business entities on file with the Arizona Corporation Commission
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 Arizona 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 Arizona. For a $100 service fee, they’ll handle that paperwork so you don’t have to.