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 Hawaii, you may need to complete a foreign qualification in Hawaii before you can expand there.
What happens if I fail to foreign qualify before doing business in Hawaii?
Foreign qualifying is essentially asking permission to do business in the state of Hawaii. 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 Hawaii yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will be prohibited from maintaining any action or proceeding in Hawaii courts
- Will be required by the Attorney General to pay all fees and penalties it would have owed during its time in Hawaii had it been properly registered.
Those fees will add up quickly, especially if your LLC has been transacting business in Hawaii for a number of years and, considering the fact that foreign qualification only costs $50, it’s just not worth the risk.
If you’re caught doing business without authorization, however, it won’t invalidate your current and ongoing contracts in the state, and it won’t prevent your LLC from defending an action in court.
The Hawaii LLC Act Sec. 428-1008 has a bit more to say about these penalties if you’re interested.
What is considered “doing business” in Hawaii?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Hawaii? Unfortunately, Hawaii law is fairly vague on the matter, but according to other state and tax laws, in most cases, you are considered to be “doing business” and required to foreign qualify if:
- Your LLC has some kind of physical presence in the state. This includes offices, stores, warehouses and other places of business.
- Salespersons, agents, and/or representatives are conducting business on your LLC’s behalf in the state.
And, of course, there are taxes to consider too. In Hawaii, LLCs are required to pay a General Excise Tax each year and foreign qualifying informs the state that you’ll be paying. Otherwise, you may be charged with tax penalties down the line. For more information on Hawaii business taxes, visit the Hawaii Department of Taxation website.
If you’re unsure whether or not you need to file for foreign qualification in Hawaii, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Hawaii?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Hawaii. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending or settling actions in Hawaii courts
- Carrying on internal affairs activities like board or shareholders meetings
- Holding bank accounts in the state
- Operating through independent contractors
- Soliciting or securing orders to be accepted outside the state before turning into contracts
- Creating, acquiring, securing, or collecting debts
- Transacting business in interstate commerce
- Facilitating a single, isolated transaction not part of a series of similar transactions
Read over the list carefully – including the expanded list in Hawaii’s LLC Act Sec. 428-1003 – and assess your own business activities in the state. If they all appear on the list, you’re likely exempt from foreign qualification. But if you have any hesitations or questions, it’s best to seek legal advice.
How to Foreign Qualify your LLC in Hawaii
Foreign qualification in Hawaii 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 golden ticket to Hawaii registration is Form FLLC-1: Application for Certificate of Authority for Foreign LLC, which you can file online or on paper.
Before we get into the details, a quick note: along with your FLLC-1, Hawaii requires a Certificate of Existence (or equivalent document) from the state where your LLC was formed. To obtain one, contact the appropriate state government.
Online filings all go through the Hawaii Business Express site. On the right side of the screen, click “Use QuickFile,” and you’ll be directed to create an account. After that, you can choose your form and begin the process.
Prefer trusty postal mail? Download and complete the FLLC-1 (make sure you do it in black ink!), then mail it to:
Department of Commerce and Consumer Affairs
Business Registration Division
P.O. Box 40
Honolulu, Hawaii 96810
If you happen to live near Honolulu, you’re also welcome to drop your form off in person. Grab your materials and swing by:
335 Merchant St.
Honolulu, Hawaii 96810
The DCCA offers step-by-step instructions for the FLLC-1 in case you have questions about a particular part.
Like other states, foreign qualification in Hawaii isn’t free. Accompanying your form, you must include a $50 payment. Online filings can be paid by credit card and mailed or in-person forms require a check made out to “Department of Commerce and Consumer Affairs.”
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 foreign qualification and you’re embarking on another chapter in the life of your business.
Name Requirements to Remember
You’ve done all this work, so to avoid your application being returned for a non-compliant LLC name, make sure you review Hawaii’s naming requirements. In short, your LLC name must:
- Use a signifier like “limited liability company,” “L.L.C.,” or “LLC”
- Be available and distinguishable in the DCCA records
- Not use the terms “financial institution”, “bank”, “banker”, “banking”, “banc”, “savings bank”, “savings and loan”, “savings association”, “financial services loan company”, “credit union”, “trust company”, “intrapacific bank”, “international banking corporation”, or “trust” unless authorized by the state.
- Not imply affiliation with a governmental agency (unless specifically permitted by that governmental agency
- Not be misleading to the public. For example, if your LLC is a pizza shop, you shouldn’t name your business New Company Chiropractic.
For a detailed list of requirements, see Hawaii’s Business Naming Rules page.
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 Hawaii 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 Hawaii. For a $100 service fee, they’ll handle that paperwork so you don’t have to.