D.C. LLC Foreign Qualification: Here’s What to do
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 D.C., you may need to complete a foreign qualification in D.C. before you can expand there.
What happens if I fail to foreign qualify before doing business in D.C.?
Foreign qualifying is essentially asking permission to do business in D.C. 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 D.C. yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will not be allowed to file or maintain any action or proceeding in D.C. courts.
- Will be liable for all fees, penalties and other charges it would have paid during its time doing business in D.C. had it been properly registered.
- WIll not be able to properly register or do business in D.C. until all of it pays all of its fees and penalties
Let’s take a look at some of those fees. The Foreign Registration Statement fee, for example, is $220, an Amendment Statement is another $220, and the Biennial Report is $300 with a $100 late fee. If your LLC does business in D.C. without registering for multiple years, these fees can pile up quickly.
But being caught doing business without registering doesn’t completely halt all of your activities in D.C. For example, it won’t invalidate any of your current contracts or preclude you from defending an action or proceeding in D.C. courts.
D.C. Code § 29–105.02 has additional details. Check it out here.
What is considered “doing business” in D.C.?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in D.C.? D.C. law defines it as “Any trade, profession, or activity which provides, or holds itself out to provide, goods or services to the general public or to any portion of the general public, for hire or compensation in the District of Columbia.” You’ll notice a lack of specifics, but we know from other state and tax laws that generally you are considered to be “doing business” and required to foreign qualify if:
- Your LLC has warehouses, offices, stores, or some other type of physical presence in D.C.
- Salespersons or representatives are conducting business on behalf of your LLC in D.C.
Depending on how your LLC is structured, it could also be subject to a D.C. franchise tax. Foreign qualifying in D.C. lets the District know that you could be subject to this tax. If you don’t foreign qualify, you may be liable to pay it, plus late fees, in the future. To learn more about D.C. franchise taxes, take a look at the Office of Tax and Revenue website.
If you’re unsure whether or not you need to file for foreign qualification in D.C., we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in D.C.?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in D.C. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, settling, etc. an action or proceeding in D.C. courts
- Activities concerning internal affairs, like shareholders or board meetings
- Holding an account with a financial institution
- Soliciting or completing orders outside the District before they become contracts
- Selling products or services through independent contractors.
- Creating or acquiring certain debts
- Doing business in interstate commerce
- Conducting one transaction that is not in a series of similar transactions
While checking this list, if you find your only business activities in D.C., you’re likely off the hook for foreign qualification. However, it would be wise to also examine the more detailed list under D.C. Code § 29–105.05. Unsure about it? It’s best to seek legal counsel rather than risk the consequences of not registering.
How to Foreign Qualify your LLC in D.C.
Foreign qualification in D.C. 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 D.C., you will need to either complete form FN-1: Foreign Registration Statement, or apply online through the CorpOnline web portal. Both are available on the D.C. Department of Consumer and Regulatory Affairs (DCRA) website.
Filing online is typically the faster and easier option. Just register for an account, find the correct form and input the necessary information. The DCRA will receive your information right away and begin processing your request.
It’s you prefer working with hard copies, that’s fine too! Download and complete the FN-1 form and send it to:
Department of Consumer and Regulatory Affairs
PO Box 92300
Washington, DC 20090
Important note: make sure to fill out the form electronically. The DCRA will not accept any handwritten forms.
Along with your paper or online form, the District will need an original Certificate of Good Standing (or Certificate of Existence) from the state where you initially formed your LLC. This certificate can be no more than 90 days old. Contact the state government to request it.
Foreign qualifying in D.C. is going to run you $220 whether your file online or by mail. Pay with a credit/debit card online or with a check (payable to “D.C. Treasurer”) accompanying your FN-1. Typical DCRA processing times for online and mailed documents is 15 days after receipt.
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 its way to being foreign qualified and you’re embarking on another chapter in the life of your business.
Name Requirements to Remember
Each state has its own rules for business entity names, and D.C. is no different. As you go through the foreign qualification process, don’t forget to confirm your name’s compliance. In D.C. your LLC name must:
- Use the words “limited liability company” or “limited company,” an abbreviation like L.LC, LLC, L.C., or LC
- Be distinguishable from all other entity names on record in D.C. and available for use.
Find more info on naming requirements in the D.C. Code § 29–103.02.
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 D.C. 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 D.C. For a $100 service fee, they’ll handle that paperwork so you don’t have to.