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 Massachusetts, you may need to complete a foreign qualification in Massachusetts before you can expand there.
What happens if I fail to foreign qualify before doing business in Massachusetts?
Foreign qualifying is essentially asking permission to do business in the state of Massachusetts. 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 Massachusetts yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will no longer be allowed to maintain or commence an action or lawsuit in Massachusetts courts. On top of that, the LLC will be subject to a civil penalty of $500 for each year that it’s been doing business in the state without foreign qualifying.
Despite these penalties, conducting business in Massachusetts without proper authorization will not prevent your from defending a lawsuit in the state, nor will it cancel or invalidate any ongoing business contracts. Further, individual members and managers cannot be held personally liable.
But it’s simply not worth the risk. The foreign qualification fee – $500 – might seem steep, but you’d be charged at least that much (and probably a lot more) if caught doing business without authorization. It’s best just to register with the state as soon as you start doing business.
To read what the Massachusetts General Laws have to say on the subject, see Section 54.
What is considered “doing business” in Massachusetts?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Massachusetts? Look to the state’s LLC Act and you’ll find a lack of specifics on “doing business.” However, other state and tax laws tell us that you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC maintains stores, warehouses, offices, distribution centers, and/or other physical presences in the state
- Representatives, like salespeople and agents, are doing business in the state on behalf of your LLC
Since LLCs can be organized and classified different ways for taxation, you may also owe certain business taxes in Massachusetts, and foreign qualifying would let the state know about your status. While it might be tempting to avoid these taxes by flying under the radar, this could lead to even more penalties in the future.
If you’re unsure whether or not you need to file for foreign qualification in Massachusetts, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Massachusetts?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Massachusetts. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or settling a proceeding in Massachusetts court
- Conducting activities solely related to internal affairs, like meetings of managers, shareholders, board members, etc.
- Having accounts at financial institutions in the state
- Maintaining offices or agencies whose only purpose is the transfer, exchange, and registration of the company’s own securities
- Selling products or services through independent contractors
- Facilitating orders accepted outside the state before becoming contracts
- Transacting business in interstate commerce
- An isolated transaction, not in line with a series of other, similar transactions
See your only business activities in Massachusetts here? If so, you’re most likely off the hook with foreign qualification. It’s a good idea to glance over the state’s General Laws, Section 15.01 too, as it outlines these exemptions in greater detail.
How to Foreign Qualify your LLC in Massachusetts
Foreign qualification in Massachusetts 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 Massachusetts, this form is going to be your best friend. It’s the one and only method for registering with the state as a foreign LLC.
Download and print the “Foreign LLC Application for Registration,” and fill it out using Adobe Acrobat or a similar program (the Secretary of the Commonwealth’s office won’t accept handwritten forms). Here’s the information you’ll need:
- Your federal employer identification number
- Your LLC name (or alternate name if your is unavailable in Massachusetts)
- The state where your LLC was formed and date of its formation
- The principal office address
- If different from the principal address, the name and address of each manager (if any)
- The name and address of each person authorized to handle instruments regarding interest in real property (if desired)
- The name and address of your Massachusetts resident agent
Finished your form? Don’t mail or fax it just yet. There are a couple more documents that need to accompany it:
- A cover sheet (page three of the application)
- A Certificate of Existence or Good Standing from the state where you formed your LLC
- A $500 application fee. You can pay via check, made out to “Secretary of the Commonwealth,” or by card for faxed forms
- A Fax Voucher Coversheet, if filing by fax
- For specific instructions on faxed forms, see here.
For mail or walk-in filings, you can send or deliver your documents to:
Secretary of the Commonwealth
One Ashburton Place, Room 1717
Boston, Massachusetts 02108-1512
Processing times for the Secretary of the Commonwealth’s office are fairly quick. Mailed applications a processed 3-5 business days after receipt, walk-in applications 1-2 days, and faxes within 24 hours.
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
Keep in mind that each state has its own rules about business names. As you expand to different states, it’s important to confirm that your real or alternate name complies with those rules. In Massachusetts, your LLC name must:
- Use the words “limited liability company,” or “limited company,” or one of the following abbreviations: “L.L.C.,” “L.C.,” “LLC,” or “LC.”
- Be distinct and distinguishable from every other business entity on record with the Secretary of the Commonwealth. It may not be deceptively similar to any names on record either (unless you have written permission from that company)
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 Massachusetts 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 Massachusetts. For a $100 service fee, they’ll handle that paperwork so you don’t have to.