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 Connecticut, you may need to complete a foreign qualification in Connecticut 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 Connecticut?
Foreign qualifying is essentially asking permission to do business in the state of Connecticut. And the notion that “it’s easier to ask forgiveness than permission” doesn’t apply here. Failing to foreign qualify before starting a business in Connecticut yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will be barred from maintaining an action or lawsuit in Connecticut courts
- Can be stopped from doing business in the state by the attorney general
- Will owe the state the total amount of fees and taxes it would’ve paid had it been properly registered
- Will be charged $300 per month the LLC has been transacting business without foreign qualifying (this does not apply if you qualify your LLC within 90 days of starting your business in the state)
Let’s add up those penalties. If, for example, you’ve been doing business in Connecticut for two years, that’s 24 months of transacting business without foreign qualifying. At $300 a pop, that comes out to $7,200, and we haven’t even added the retroactive fees and taxes yet. Plus, the Secretary of State could cut off your business operations, leaving you without any income in the state. Compared to those penalties, the $120 foreign qualifying fee doesn’t seem that bad.
Take a deeper dive into the possible penalties in the Connecticut Uniform LLC Act Sec. 34-275.
What is considered “doing business” in Connecticut?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Connecticut? The state’s LLC Act doesn’t give specific examples, but you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has a physical presence — like stores, office, warehouses, etc. — in the state.
- Salespersons or representatives are operating on behalf of your business in the state.
Depending on how your LLC is structured, you may also need to pay specific business taxes in Connecticut. Foreign qualifying notifies the state that you’ll be paying these taxes. If not, you will be liable to pay them, plus any late fees, later.
If you’re unsure whether or not you need to file for foreign qualification in Connecticut, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Connecticut?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Connecticut. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Settling, defending, maintaining or mediating an action or proceeding in a Connecticut court
- Carrying on activities related to internal affairs, such as board or manager meetings
- Maintaining accounts at financial institutions
- Selling products or services through independent contractors
- Soliciting or obtaining orders outside the state
- Creating or acquiring debt
- Transacting business in interstate commerce
- Conducting a single transaction that is unrelated to other business operations.
- Voting securities or other equity ownership interests
- Owning, without more, property
We strongly advise checking out the more detailed list of exemptions located in Connecticut’s LLC Act, Sec. 34-275. If upon reviewing the list, you find your only Connecticut business operations included, you likely do not need to foreign qualify your LLC. But if you’re at all unsure, it’s best to seek legal advice.
How to Foreign Qualify your LLC in Connecticut
Foreign qualification in Connecticut 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, your ticket to doing business in Connecticut is the “Foreign Registration Statement.” The most efficient way to file for registration is through the Secretary of State’s Online Filing System. On the Forms and Fees page, just click “file online” next to the form.
But mail is a viable option too. Download and complete the form, then mail it, along with your payment, to:
Business Services Division
Connecticut Secretary of State
P.O. Box 150470
Hartford, Connecticut 06115-0470
Live near Hartford? You can also hand deliver it as part of your daily errands. Drop it off at:
30 Trinity St.
Hartford, Connecticut 06106
The fee for foreign registering your LLC is $120, which you pay by check (by mail or in person) or by credit/debit card (online). Make checks payable to “Secretary of the State.” Typical processing time is 3-5 after receipt, but if you need it quicker, you can file an “Expedited Service Request,” which costs an additional $50 and guarantees a 24-hour turnaround.
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 on the way to being foreign qualified and you’re embarking on another chapter in the life of your business.
Name Requirements to Remember
You likely checked to make sure your LLC name was available in Connecticut, but you should also confirm that your name follows the state’s business naming requirements. Make sure that your name:
- Uses a signifier that identifies it as a limited liability company like L.L.C, LLC, Ltd. etc.
- Does not use terms that would mislead the public as to its function. For example, if you run a florist, you shouldn’t call your business “New Company Financial Services.”
- Is available and distinguishable in the Secretary of State records from the name of other registered or reserved business entities.
Refer to the Connecticut LLC Act, Sec. 34-243k for additional details regarding business name restrictions.
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 Connecticut 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 Connecticut. For a $100 service fee, they’ll handle that paperwork so you don’t have to.