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 Michigan, you may need to complete a foreign qualification in Michigan before you can expand there.
Important Note: If you’d like to save time and have the foreign qualification paperwork taken care of for you, look into a reliable online service like Northwest Registered Agent.
What happens if I fail to foreign qualify before doing business in Michigan?
Foreign qualifying is essentially asking permission to do business in the state of Michigan. 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 Michigan yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Cannot commence or maintain a lawsuit in Michigan courts
- Will owe the state all the fees and penalties it would have paid during its time doing business in Michigan had it been properly registered
- Will be subject to a civil penalty of up to $10,000
- Each manager or member who participated in business transactions will be liable for a penalty of up to $10,000
So, if your LLC transacts business in Michigan without authorization, not only can the company itself be charged, but you might end up personally owing the state $10,000 as well. And so might each of your associates. That’s not even considering all the fees, including late fees, you would have to backpay. It’s a lot to risk, especially considering the fee for foreign qualification is only $50, so it’s best just to register your business and have the peace of mind.
The state’s penalties, however, don’t include invalidating your current contracts or preventing you from defending a legal proceeding.
Want to learn more? The Michigan LLC Act, Section 450.5007 provides additional details on these penalties.
What is considered “doing business” in Michigan?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Michigan? Unfortunately, the state’s LLC Act doesn’t call out any specifics. However, other state and tax laws say that you are considered to be “doing business” and required to foreign qualify if:
- You have a physical presence in the state. This could include offices, stores, warehouses, distribution centers, and other structures.
- There are salespeople, agents, or other representatives transacting business for your LLC in the state
Of course, there are always taxes to consider too. Your LLC may be required to pay certain business-specific taxes in Michigan, depending on how it’s structured. Foreign qualification is what notifies the state about your tax status. Sure, it’s enticing to save money by avoiding these taxes, but this could lead to bigger penalties in the future, so you should register as soon as you begin doing business.
If you’re unsure whether or not you need to file for foreign qualification in Michigan, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Michigan?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Michigan. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Defending or settling any proceeding in a Michigan court
- Holding meetings, or orchestrating other activities solely-related to internal affairs
- Maintaining bank accounts
- Having offices for the transfer or 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
- Arranging and completing a single transaction, outside of typical your business activities, in the course of no more than 30 days
Be sure to check out the source material, Michigan’s LLC Act, Section 450.5008, for more in-depth descriptions of these exemptions. Cross-check your business activities in Michigan with these lists and if you find them all present, you’re likely free from foreign qualifying. But if you have any hesitations, it’s best to seek legal counsel.
How to Foreign Qualify your LLC in Michigan
Foreign qualification in Michigan 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 Michigan, you will need to submit a Form CSCL/CD-760: Application for Certificate of Authority to Transact Business in Michigan. While its title lacks brevity, the content does not. Here’s all the information you’ll need to complete it:
- Your LLC name (or assumed name if yours is unavailable in Michigan)
- The state where your LLC was formed, the date of its formation, and its duration
- Your LLC’s principal address
- Your Michigan resident agent and registered office
- The name and address of a member or manager
- A description of the business you plan on transacting in Michigan
The form’s third page contains in-depth, step-by-step instructions for how to fill it out.
Along with your completed form, you are required to submit a Certificate of Existence or Good Standing from the state where your LLC was formed. To obtain one, contact your home state government.
You’re almost there! All that’s left is to submit your documents. You can mail them – along with a check or money order made out to “State of Michigan” – to:
Michigan Department of Licensing and Regulatory Affairs
Corporations, Securities & Commercial Licensing Bureau
P.O. Box 30054
Lansing, Michigan 48909
If you happen to live near Lansing and want to get out of the house or office, you can also drop off your form at 2501 Woodlake Circle Okemos, Michigan. In person, you can pay your fee with a check, money order, or credit card.
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
Before you submit your paperwork, double check to confirm that your real or assumed LLC name follows Michigans specific business name rules. You wouldn’t want your application held up because of a naming issue. Your LLC name must:
- Contain the words “limited liability company,” or the abbreviation “L.L.C.,” “L.C.,” “LLC,” or “LC”
- Not use any words/phrases that would misrepresent its purpose. For example, if you run a painting business, you shouldn’t name your LLC “John’s Fresh Baked Goods.”
- Not use the words “corporation” or “incorporated,” or the abbreviations “corp.” or “inc.”
For more information regarding these naming rules, see the Michigan LLC Act, Section 450.4204.
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 Michigan 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 Michigan. For a $100 service fee, they’ll handle that paperwork so you don’t have to.