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 where 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 Illinois, you may need to complete a foreign qualification in Illinois before you can expand there.
What happens if I fail to foreign qualify before doing business in Illinois?
Foreign qualifying is essentially asking permission to do business in the state of Illinois. 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 Illinois 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 civil action in an Illinois court
- Must backpay the state all the fees and LLC taxes it would have owed during its time in Illinois had it been registered properly
- Will be liable for a penalty of $2,000, plus an additional $100 for every month it has been transacting business in Illinois without foreign qualifying.
Let’s add up those penalties. Consider this: you started doing business in Illinois on June 1, 2017, and didn’t foreign quality until January 1, 2022. Your initial penalty is $2,000. Then, let’s add $100 for each of the following 55 months. That’s $7,500, and we haven’t even added all of the fees and taxes you missed paying. This would put a serious dent in your profits. Seeing as the fee to foreign qualify is only $150, it’s not worth the risk to go unregistered.
Despite the steep penalties involved, transacting business without qualification won’t invalidate your current contracts, nor will it prevent your LLC from defending an action in Illinois courts.
The Illinois LLC Act has more to say about this in Sec. 45-45.
What is considered “doing business” in Illinois?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Illinois? The state’s LLC Act doesn’t provide specifics, but based on state tax laws, you are generally considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has stores, offices, warehouses, or other physical presences in the state.
- Salespersons, agents, or representatives are conducting business on behalf of your LLC in the state.
And, of course, there are always taxes to consider. Depending on how you’ve chosen to set up your LLC, you may very well be liable for specific business taxes in Illinois. If you don’t foreign qualify, the state won’t know to tax you, and you could be subject to additional tax-related fines later on. For more information on Illinois’ corporate taxation, visit the Illinois Department of Revenue website. It’s important to always stay on top of your LLC’s taxation requirements to avoid any unwelcome surprises.
If you’re unsure whether or not you need to file for a foreign qualification in Illinois, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Illinois?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Illinois. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Settling, defending, or maintaining any legal action in Illinois courts
- Facilitating meetings of LLC members and/or managers, or other activities pertaining to internal affairs
- Maintaining bank accounts
- Operating or selling through independent contractors
- Soliciting orders as long as they require acceptance outside the state and are executed before becoming contracts
- Completing a single transaction, not in a series of similar ones, within 120 days
- Owning real or personal property in Illinois
- Having a corporate officer who lives in Illinois
Cross-check this list with your LLC’s activities in Illinois. If you find your only business activities present, you’re likely exempt from foreign qualifying in the state. Still, it’s a good idea to look over the full list in the Illinois LLC Act Sec. 13.75 just to make sure. And if you have any questions, seek legal counsel.
How to Foreign Qualify Your LLC in Illinois
Foreign qualification in Illinois 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 Illinois, go to the Secretary of State Forms page and find LLC-45.5: Application for Admission to Transact Business. Filing this form by mail or in person will get your LLC foreign qualified and ready to operate in Illinois.
Download and fill out the form. For the most ease in processing, complete it electronically using Adobe Acrobat before printing. Before you sit down with your application, make sure you have the following information on hand:
- LLC name or assumed name (only if your company name is unavailable in Illinois)
- Jurisdiction (the state where you formed your domestic LLC)
- Date you originally formed your LLC
- Period of LLC duration
- Principal address
- Illinois registered agent name and address
- Date you first conducted or plan on conducting business in Illinois
- The purpose of your LLC
- Names and addresses for all LLC managers
But you’re not done yet! You also need to obtain and submit a Certificate of Good Standing (or Certificate of Existence) – no more than 60 days old – from your LLC’s home state.
Got it all? Great. Then mail your form, certificate, and application fee to:
Department of Business Services
Limited Liability Division
501 S. Second St., Rm. 351
Springfield, IL 62756
*You can also drop it off in person if you live near Springfield
There is a $150 fee for foreign qualifying in Illinois, and you can pay it with a check or money order made out to the “Secretary of State.” The typical processing time is 7-10 days. If you’re submitting your form in person, you can request expedited processing for an additional fee.
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
We wouldn’t want your application returned for having a noncompliant LLC name, so remember to follow all of Illinois’ business name restrictions when submitting it. Your LLC name must:
- Use one of the terms: “Limited Liability Company,” “L.L.C.,” or “LLC.”
- Not contain any of the following terms: “Corporation,” “Corp.,” “Incorporated,” “Inc.,” “Ltd.,” “Co.,” “Limited Partnership,” or “LP.”
- Be recognizable and available within the Illinois Secretary of State records. Perform an Illinois LLC name search to make sure the name you want is available.
You can also reserve your Illinois business name if you’re not quite ready to foreign qualify your LLC.
Should I hire a service to file my Illinois foreign LLC?
Considering all the work that goes into expanding your business to a new state, you’ve likely got a lot on your plate. Rather than trying to juggle everything yourself, you can bring on an individual or company to help you secure your LLC’s Illinois foreign qualification.
For example, business attorneys understand all the legal nuances involved, providing peace of mind that the job will get done correctly. But if you go this route, be sure you have the budget for it. Lawyer fees for Illinois foreign LLC qualifications can be a prohibitively expensive option for businesses operating on tight budgets.
If you’re operating on a limited budget, but still want to have your Illinois foreign LLC professionally registered, go with an online business service provider. There are plenty of reputable companies that can help you out with Illinois foreign qualifications, but here are a couple of our favorites:
- MyCompanyWorks ($99): MyCompanyWorks is one of the only service providers offering foreign qualifications for less than $100. This company receives excellent customer reviews and has a great track record of success, making it a smart choice for a wide range of entrepreneurs.
- IncFile ($149): IncFile offers a free LLC formation service that we have always appreciated, and its pricing for foreign qualifications is a reasonable $149. IncFile has the best customer feedback reputation in the industry, with tens of thousands of positive reviews available online.
- Northwest Registered Agent ($225): Northwest is more of a premium service, with the best customer support in the industry, in our opinion. They also include a year of their namesake registered agent service with every foreign qualification. There’s a reason Northwest is our #1 pick among the best registered agent services!
Frequently Asked Questions
When Is the Best Time to Foreign Qualify an LLC?
We think you should foreign qualify your LLC before you begin conducting business in a new state. If you don’t, your business could be subject to a broad range of fines and penalties for operating an LLC in a state where you don’t have permission to do so.
How Long Does It Take Illinois to Process a Foreign Qualification?
You’ll typically need to wait roughly 7-10 business days for Illinois to process your foreign LLC application.
Where Can I Learn More About the Illinois LLC Licensing and Permitting Requirements?
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Illinois state law. Unfortunately, Illinois does a poor job of explaining its business licensing requirements, as the state’s official Registrations, Licenses, and Permits webpage is almost entirely worthless. We recommend checking with any relevant state agencies, along with your municipal and county governments, to find out what licenses you might need.
Do I Need to File an Annual Report for My Foreign LLC in Illinois?
Yes. Whether you operate a domestic or foreign LLC in this state, you are required to file an Illinois LLC Annual Report.
What Is the Total Expected Cost of Operating an LLC in Illinois?
The overall costs of operating an Illinois LLC can vary considerably based on the specifics of your business. However, we created a helpful guide to help you identify and plan for every expense your LLC will face in this state.
Should I Use an LLC Service, Hire an Attorney, or Foreign Qualify My Own LLC?
The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.
Using an LLC service means your business will be foreign qualified by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.
How Do Online LLC Services Work?
Using an online LLC service removes much of the hassle from the foreign qualification process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your Illinois registered agent.
The service then registers your Application for Admission with the state to qualify your LLC to do business in Illinois.
Are LLC Service Websites Legit?
Absolutely. There are quite a few reputable companies offering LLC formation service and foreign qualifications these days, including the two options we discussed earlier: MyCompanyWorks and IncFile.
In fact, while we certainly have our opinions about which ones offer the best pricing and features, every one of the incorporation services we discuss on this website is entirely legitimate and trustworthy.
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 Illinois 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.