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 Iowa, you may need to complete a foreign qualification in Iowa before you can expand there.
What happens if I fail to foreign qualify before doing business in Iowa?
Foreign qualifying is essentially asking permission to do business in the state of Iowa. 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 Iowa yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Cannot maintain, defend, settle, etc. any action or proceeding in Iowa courts
- Can be cut off from transacting business in Iowa by the attorney general
- Will be charged with a civil penalty of up to $1,000
- May have any proceeding it commenced stayed by a district court
These penalties really compound one another. Not only is there a $1,000 fine on the table, but additionally, the attorney general can completely stop your LLC’s revenue stream in Iowa, and without the ability to bring an action to court, you’d have little to no legal leverage. Quite simply, it’s not worth the risk. Especially considering that it only costs $100 to apply for a Certificate Authority.
Feel like looking into the Iowa law itself? You can find more on these penalties in Section 489.808.
What is considered “doing business” in Iowa?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Iowa? Unfortunately, Iowa law doesn’t provide many specifics. However, we know from other state and tax laws that you are generally considered to be “doing business” and required to foreign qualify if:
- You have a physical presence in the state. Offices, warehouses, stores, and mailboxes located in Iowa all count as physical presences.
- Your LLC has salespersons, representatives, or agents operating on its behalf in the state.
Depending on how you’ve set up your LLC, you may need to pay business taxes in Iowa. If you don’t foreign qualify, the state won’t be aware of your tax status there, and you may end up with larger tax-related fines later on.
If you’re unsure whether or not you need to file for foreign qualification in Iowa, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Iowa?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Iowa. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defening or settling a lawsuit in an Iowa court.
- Dealing with internal business affairs, such as holding manager meetings.
- Having bank accounts in the state.
- Maintaining offices for the exchange of the LLC’s own securities
- Selling products or services through independent contractors.
- Creating or acquiring indebtedness, or collecting debts
- Transacting business in interstate commerce
- One transaction, apart from the LLC’s typical activities, taking place within 30 days
If your only business activities in Iowa appear on this list, lucky you! You’re likely exempt from foreign qualifying in the state. Nonetheless, it’s still a good idea to check out what the Iowa LLC Act has to say about it in Section 489.803.
How to Foreign Qualify your LLC in Iowa
Foreign qualification in Iowa 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 Iowa, head right over to the Secretary of State Forms and Fees page. Once there, find your way to the Foreign LLC section and click “Application for Certificate of Authority.” This is your ticket to doing business in Iowa.
Gather all your LLC information beforehand and you’ll cruise through this form. You’ll need the following info:
- LLC Name (or a fictitious name if yours is unavailable in Iowa)
- State where you formed your LLC
- Your LLC’s duration and date it was formed
- Name and address of your Iowa registered agent
- Address of your LLC’s principal office
- The name and address of one manager or member
Okay, your form is complete, but don’t send it just yet. Also required is a Certificate of Existence from the state where you formed your LLC, dated not more than 90 days before you submit your application.
As you probably expected, applying for foreign qualification isn’t free, although Iowa’s $100 fee isn’t bad comparatively. You can pay via check, made out to “Secretary of State.”
Got everything? Great. Package it up and mail it to:
Secretary of State
Business Services Division
Lucas Building, 1st Floor
Des Moines, IA 50319
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
Expanding to a new state is exciting stuff, and can also feel overwhelming at times. But don’t forget the details, like Iowa’s business name requirements. To do business there, your LLC name must:
- Contain one of the following terms: “limited liability company,” “limited company,” “L.L.C.,” “LLC,” “L.C.,” or “LC”
- Be available and distinguishable from every other entity name registered with the Iowa Secretary of State.
Take a look at the Iowa LLC Act 489.108 for more details.
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 Iowa 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 Iowa. For a $100 service fee, they’ll handle that paperwork so you don’t have to.