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 Kentucky, you may need to complete a foreign qualification in Kentucky before you can expand there.
What happens if I fail to foreign qualify before doing business in Kentucky?
Foreign qualifying is essentially asking permission to do business in the state of Kentucky. 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 Kentucky 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 lawsuit in Kentucky courts. Plus, the attorney general could stay any in-progress actions or proceedings your LLC commenced. And there are monetary fines too. Your LLC will be subject to a $2 fine for each day it has been transacting business without authorization in the state.
Two dollars might not seem like much, but when you consider that it adds up to $730 a year, it looks much more intimidating. That – combined with the fact that you could lose your legal standing in Kentucky – makes operating in the state without foreign qualifying a risky move.
Although, there are some things that would remain unaffected. Transacting business without authorization won’t, for example, invalidate your LLC’s current contracts; nor would it prevent you from defending an action in court.
Find more information on these penalties in Kentucky’s Revised Statutes, Section 14A.9-020.
What is considered “doing business” in Kentucky?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Kentucky? The state statutes are fairly quiet on what specifically constitutes “doing business,” but according to other state and tax laws, you are considered to be “doing business” and required to foreign qualify in most states if:
- You have a physical presence in the state. This can mean stores, offices, warehouses, or other physical structures.
- You have agents, salespeople, or other representatives transacting business on your behalf in the state.
Depending on how you’ve structured your LLC, you also might be subject to specific business taxes in Kentucky. Without a foreign qualification on file, the state would be unaware or your LLC’s tax status, and this could lead to even larger penalties later on. So, foreign qualifying right away can help you stay in good standing with the state and avoid further fines.
If you’re unsure whether or not you need to file for foreign qualification in Kentucky, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Kentucky?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Kentucky. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, settling, or defending a suit in Kentucky courts
- Carrying on activities solely related to internal affairs, such as meetings of directors, shareholders, members, managers, etc.
- Having a business bank account in the state.
- Holding offices for the transfer or exchange of your LLC’s own securities
- Selling products or services through independent contractors.
- Securing and collecting debts, or creating and acquiring indebtedness
- Transacting business in interstate commerce
- Owning, without more, real or personal property
- Facilitating a single transaction, completed within 30 days and not in line with a series of similar actions
You can find this list in more detail in the Kentucky Revised Statutes, Section 14A.9-010. After reviewing both lists, see if your business activities in Kentucky are included. If they are, you’re probably exempt from foreign qualifying. However, it’s wise to seek legal counsel if you’re unsure, or if you just want to double check.
How to Foreign Qualify your LLC in Kentucky
Foreign qualification in Kentucky 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 Kentucky, go to the Secretary of State Business Filings Forms page and scroll down to the Foreign Limited Liability Companies section. There you’ll find a link for “Certificate of Authority.” Click it to begin your foreign qualification journey.
Unfortunately, online filing isn’t an option for this form, so you’ll need to download it and submit it via mail or in person. To streamline the process, gather all your information beforehand so you won’t have to stop and search while filling out your form. Here’s what you’ll need:
- Your LLC name (or alternate name if your real name is unavailable in Kentucky)
- The state where you formed your LLC and date you did so
- Your principal office address
- Your Kentucky registered agent’s name and address
- The names and addresses of your LLC’s representatives
- The size and function of your LLC
- Signatures of authorized representative and registered agent
When you’re finished, you can mail your form to:
Alison Lundergan Grimes
Secretary of State
P.O. Box 718
Frankfort, Kentucky 40602-0718
If you live near Frankfort and want to physically hand it in, that works too! Drop it off at:
Capitol Building, Room 154
700 Capital Ave.
Frankfort, Kentucky 40601
Foreign qualifying isn’t cheap, but Kentucky’s $90 fee is a lot less than some other states. You can pay this fee by including a check, made out to “Kentucky State Treasurer, with your form.
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
But we’re not done yet! Before submitting your document and payment, quickly check to make sure your LLC name follows Kentucky’s business naming guidelines. Your name must:
- Contain the words “limited liability company” or “limited company” or the abbreviation “LLC” or “LC”
- Not use the word “cooperative”
- Be unique and distinguishable from all other business entity names on record with the Secretary of State (use the Name Availability Search to see if your name is already in use).
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 Kentucky 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 Kentucky. For a $100 service fee, they’ll handle that paperwork so you don’t have to.