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 Maryland, you may need to complete a foreign qualification in Maryland before you can expand there.
What happens if I fail to foreign qualify before doing business in Maryland?
Foreign qualifying is essentially asking permission to do business in the state of Maryland. 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 Maryland yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will no longer be able to maintain a lawsuit in Maryland courts
- Will owe the state a civil penalty of $200
- Each member of the LLC that conducted unauthorized business in the state will be guilty of a misdemeanor and charged a fine of up to $1,000
To reiterate: if you do business in Maryland without foreign qualifying, there aren’t just penalties for the company, but you and your colleagues can be held personally liable. Maryland is one of the few states that impose this type of misdemeanor, so it’s best not to play with fire; foreign qualify as soon as you launch in the state.
Maryland’s Revised Statutes, Section 4A-1007 gives a more thorough description of these penalties, if you’re interested.
What is considered “doing business” in Maryland?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Maryland? Even though Maryland law is vague on the topic, in most states you are considered to be “doing business” and required to foreign qualify if:
- You have a physical presence, or nexus, in the state. This includes offices, stores, warehouses, distribution centers, etc.
- Salespeople, agents, and/or other representatives are conducting business on your behalf in the state.
If you’re unsure whether or not you need to file for foreign qualification in Maryland, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Maryland?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Maryland. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Defending or settling an action, suit, claim, or dispute in Maryland court
- Carrying on activities relating to internal affairs, like board meetings
- Maintaining bank accounts in the state
- A single, solitary transaction, not part of other similar ones or typical business activities
- Forclosing on property or deeds of trust on property
- Acquiring property in the state by foreclosure or deed
- Holding and maintaining property acquired by foreclosure
- Selling or transferring property acquired by foreclosure
One more note on property: If you own other income-producing property in Maryland, other than the types of property designated by this list, you will be considered to be doing business.
Find a more comprehensive list of exemptions in the Revised Statutes Section 4A–1009. If your sole business activities in Maryland are on this list, you most likely don’t need to foreign qualify. Nevertheless, it’s good to seek legal advice if you’re not sure.
How to Foreign Qualify your LLC in Maryland
Foreign qualification in Maryland 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 Maryland, have no fear, the process is fairly straightforward. You have two options: download and complete a paper form, or apply online.
Both options will require you to submit a Certificate of Existence or Good Standing from the state in which your LLC was formed. Contact your home state’s government to obtain one.
Often in business, efficiency is the name of the game and filing online is the most efficient way to foreign qualify. Follow these steps and you’ll be done in no time:
- Go to the Maryland Business Express portal
- Select “Register Your Business”
- Create an account
- Select “Create a New Business Filing”
- Choose “Non-Maryland Limited Liability Company”
- Input the required information on each subsequent screen
- Make your $150 payment (plus a $3 service fee)
Prefer to leave a paper trail? No problem. Download the “LLC Registration Form (For non-Maryland LLC)” and complete it with the appropriate information. Then mail it, along with your Certificate of Existence and $100 payment, to:
Maryland State Department of Assessments and Taxation
Corporate Charter Division
301 W. Preston St. Room 801
Baltimore, MD 21201
The $100 fee is payable by check, made out to “State Department of Assessments and Taxation,” or, if filing online, by credit/debit card. Standard processing time is up to eight weeks, but there is an option for 5-7 day expedited processing for an additional $50 fee. All online filings incur an expedited fee, as they are processed within three business days.
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 a lot of work to get your LLC ready for foreign qualification, and you wouldn’t want to get tripped up by a detail like name compliance. As a reminder, in Maryland your LLC name must:
- Contains a signifier that confirms its status and an LLC, like “limited liability company,” “limited company,” “L.L.C.,” “LLC,” “L.C.,” or “LC”
- Is available and easily distinguishable in the state’s records. Use the “Business Entity Search” to see if your proposed 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 Maryland 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 Maryland. For a $100 service fee, they’ll handle that paperwork so you don’t have to.