Are you looking to expand your limited liability company (LLC) into an additional state, but you’re not quite sure how the foreign qualification process works? Out-of-state businesses have to abide by a different set of rules than domestic LLCs do, and understanding how they differ is the key to remaining compliant in any state your LLC does business in.
With that in mind, this article will walk you through the most important operational aspects of foreign LLCs. We’re confident that by the time you’re done reading, you’ll have a solid grasp on how to expand your business into another state.
What Is a Foreign LLC?
A foreign LLC is any limited liability company that is doing business in a state other than the one it was formed in. For example, if you form a business in Nevada and later begin selling your products in California as well, your primary LLC is the Nevada location, and you’ll need a foreign LLC in California.
In general, you’ll definitely need to acquire a foreign qualification for your LLC in any state where you have a physical presence, such as a retail store, a warehouse, an office, etc. But it can be simpler than that too, as selling products, opening a bank account, holding a business meeting, or acquiring a mailing address in another state is often enough to require you to file for a foreign LLC.
What Are the Repercussions for NOT Registering a Foreign LLC?
Every state has penalties for conducting business as an out-of-state LLC without foreign qualification, but the exact nature of those penalties do vary from state to state. Most states will at least charge a considerable fee that will cost you much more than it would have cost to form the foreign LLC in the first place.
The other most common penalty is that the state may allow any company you do business with to void any contract they agreed to with your LLC. Another possibility is that the state might disallow you from filing a lawsuit against any individuals or business entities, making it impossible to defend yourself if someone decides not to honor a contract with your business. Either of these options can be incredibly damaging to your company, and can be easily avoided by registering a foreign LLC.
In another scary possibility, you as the LLC’s owner may lose your limited liability protection. If you fail to acquire a foreign qualification, the state could allow creditors to pursue your personal assets in the case of a lawsuit, which essentially defeats the purpose of forming an LLC to begin with.
How Do I File for a Foreign LLC?
If you want to acquire a foreign qualification for your LLC, you’ll need to create a document known as the certificate of authority ― also known in some states as a certificate of registration ― and file it with the state’s Secretary of State. Of course, before you file your certificate of registration with your expansion state, you’ll need to officially form your LLC in your primary state.
Along with your certificate of registration, you’ll also need to file a certified copy of the articles of organization from your primary state, or a Certificate of Good Standing. Once you’re ready to file the correct documents for your state, you will also need to pay some sort of filing fee. In general, these fees are higher to form foreign LLCs than they are for domestic LLCs.
While the requirements do vary a bit between different states, you can usually expect your state to want some basic information about your business, including the name and street address of your LLC, the date it was formed, the state of origin, and the name and address of your registered agent.
Should I Hire Someone to File My Foreign LLC?
If you choose to draft and file your own certificate of authority, most states will have templates on their websites, while in others you’ll have to create yours from scratch. However, you do have some options if you’d rather get some assistance.
You can always hire an attorney to complete your certificate and file it for you, which gives you considerable peace of mind because it ensures that the job is done correctly. On the other hand, paying a lawyer’s fees for a foreign LLC qualification can be a prohibitively expensive option for businesses operating on tight budgets.
Another popular option is hiring an online business service provider. This is a great option if you want to save money compared to hiring a lawyer, but still have your foreign LLC professionally formed. There are plenty of reputable companies that can help you out with a foreign qualification, and these are a couple of our favorite options:
- Northwest Registered Agent – $100: Some competitors (like LegalZoom) charge over $200 to file your foreign LLC, but Northwest offers service for just $100. They also offer next-level personalized customer support, so they’re always a strong contender for foreign qualification service.
- IncFile – $149: While IncFile’s price point is a bit higher than Northwest Registered Agent’s rate for foreign qualifications, their customer feedback is fantastic. IncFile has thousands of reviews available online, and it’s nearly impossible to find more than a few bad reviews.
- LegalZoom – $229: LegalZoom’s prices are rarely competitive with IncFile or Northwest, but their high customer volume and tremendous brand power are appealing attributes. Throw in their 100% satisfaction guarantee and their extended customer support availability, and you an see why they’re so popular.
It’s not too difficult to form a compliant foreign LLC in any given state, as long as you’re aware of the rules and regulations. All you’ll need to do is form a domestic LLC in your primary state first, then file a certificate of authority with the state where you want to expand your business.
Of course, if you’re not excited about the idea of handling these steps with the DIY method, you do have other options. You can either hire a business lawyer to acquire your foreign qualification, or turn to an online business services provider.
No matter how you choose to form your foreign LLC, we wish you the best of luck with your business expansion!