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 Arkansas, you may need to complete a foreign qualification in Arkansas 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 Arkansas?
Foreign qualifying is essentially asking permission to do business in the state of Arkansas. And the notion that “it’s easier to ask forgiveness than permission” doesn’t apply here. Failing to foreign qualify before starting business in Arkansas yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will not be able to maintain a lawsuit or proceeding in any Arkansas court
- Will owe the state an accumulation of any fees and taxes it would have paid had it registered normally (the Articles of Organization fee, for example, which is $50, or the annual franchise tax for LLCs is $150)
- Will be liable for a civil penalty of up to $5,000
Let’s add up those penalties. Say you’ve been doing business in Arkansas for three years without foreign qualifying. The maximum civil penalty is $5,000, plus you’d have the annual franchise tax of $150 per year, not to mention your $50 Articles of Organization fee. It could end up costing you $5,500. The fee to foreign qualify is $300, quite a bit less. It’s simply not worth the risk.
For more information on these penalties, take a look at A.C.A. 4-27-1501.
What is considered “doing business” in Arkansas?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Arkansas? You are considered to be “doing business” in Arkansas and required to foreign qualify if:
- You have offices, warehouses, stores, or other physical presences in the state. Generally, a physical presence, or nexus, in any state counts as “doing business.”
- Your LLC has salespersons or representatives operating in the state on its behalf.
Then there’s those pesky taxes. Mentioned in the section above, Arkansas requires a “franchise tax.” All LLCs, domestic or foreign, are required to pay this annual tax of $150. Foreign qualifying in Arkansas lets the state know that you’ll be paying a franchise tax each year.
If you’re unsure whether or not you need to file for foreign qualification in Arkansas, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Arkansas?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Arkansas. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining or defending any legal proceeding in Arkansas courts
- Holding board of directors, shareholders, or other internal affairs meetings in the state
- Opening or maintaining a bank account in the state
- Selling products or services through independent contractors.
- Securing and collecting debts, or or enforcing mortgages and security interests
- Transacting business in interstate commerce
- Completing a single transaction, in no more than 30 days, that falls outside your typical business dealings
- Owning real or personal property in Arkansas
For more detail on these exemptions, refer back to A.C.A. 4-27-1501. If you find your LLC’s only actions in Arkansas on this list, it’s likely that you won’t need to foreign qualify. But when in doubt, it’s best to seek legal counsel instead of risking the steep penalties.
How to Foreign Qualify your LLC in Arkansas
Foreign qualification in Arkansas 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 Arkansas, go to the S.O.S. Business and Commercial Services “Forms/Fees” webpage. The form you need is FL-01, the “Application for Certificate of Registration of Foreign LLC,” which you can file online or by mail. For either option, you’ll need to gather the following information:
- Your LLC name (or your LLC’s fictitious name, used only if your name is unavailable in Arkansas)
- The state and date of your LLC’s formation
- The name and address of your Arkansas registered agent
- Your LLC’s physical address
- A certificate of existence (or equivalent document) from the state in which your LLC was formed, issued not more than 30 days prior to your application. Without this, your application will not be processed.
If you have all this, you’re ready to foreign qualify! The most efficient way is to file online.
But if you’re so inclined, you’re also welcome to download the form, fill it out, and mail it to:
Office of the Secretary of State
1401 W. Capitol, Suite 250
Little Rock, AR 72201
Or, if you live nearby, feel free to deliver your document and payment in person to the same address.
Of course, this application isn’t free. You’ll need to pay a $300 fee if filing by mail or in-person, and a $270 fee to file online. Pay with a credit card online and with a personal check by mail or in-person.
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
It’s important to remember Arkansas’ LLC naming requirements, as they still apply to foreign companies. When foreign qualifying, your business name must:
- Use a signifier that identifies it as a limited liability company, like L.L.C. or LLC
- Be available and distinguishable from all other Arkansas business entities. If your existing name is already taken in Arkansas, you’ll need to register under a “fictitious name.” Check your name availability by searching for it in the Arkansas business entity database.
Remember that punctuation, capitalization, and entity type signifiers (LLC, Inc., etc.) do not make a name distinguishable. For example, New Company LLC is considered the same as New Company Inc., and new company LLC is the same as NEW COMPANY LLC.
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 Arkansas 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 Arkansas. For a $100 service fee, they’ll handle that paperwork so you don’t have to.