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 Montana, you may need to complete a foreign qualification in Montana before you can expand there.
What happens if I fail to foreign qualify before doing business in Montana?
Foreign qualifying is essentially asking permission to do business in the state of Montana. 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 Montana yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will be banned from enacting or maintaining lawsuits in Montana courts
- Can have any existing actions or proceedings stayed by a Montana court
- Will be penalized $5 per day that the LLC has been transacting unauthorized business in the state, with a maximum penalty of $1,000 per year
But it’s not entirely bad news. Transacting business in Montana without authorization won’t invalidate any of your current contracts, nor will it keep you from defending a lawsuit in Montana court. Still, given the hefty fines and legal consequences, it’s best not to risk it and foreign qualify as soon as you begin doing business.
For more information regarding these penalties, take a look at Montana’s LLC Act, Section 35-8-1002.
What is considered “doing business” in Montana?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Montana? If you look for specifics in the state’s LLC Act, unfortunately, you won’t find them. However, we know from other state and tax laws that generally you are considered to be “doing business” in most states and required to foreign qualify if:
- You have some type of physical presence in the state. This can mean offices, warehouses, stores, or other structures
- Or, you have salespeople, agents, or other representatives transacting business on your behalf in the state.
While LLCs often operate as pass-through entities for taxation, depending on how your business is structured and what type of business you do, you may be required to pay certain business taxes in Montana. When you foreign qualify, you’re also letting the state know how to tax you. While it might seem thrifty to fly under the radar, this could lead to more severe penalties down the line. To learn more about business taxes in Montana, see the Department of Revenue website.
If you’re unsure whether or not you need to file for foreign qualification in Montana, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Montana?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Montana. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, settling, or defending lawsuits in Montana courts
- Holding meetings in the state, or other activities solely associated with internal affairs
- Maintaining bank accounts
- Holding 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
- Owning non-income producing property not used in the performance of the LLC
- Transacting business in interstate commerce
- Conducting a single transaction within 30 days that is not part of a series or regular business proceedings.
This list is fairly comprehensive, but for more detail on any of these exemptions, see the LLC Act, Section 35-8-1001. If your only business activities in Montana appear here, you’re likely exempt from foreign qualifying. Once again, if you’re at all unsure, it’s best to get some legal advice.
How to Foreign Qualify your LLC in Montana
Foreign qualification in Montana 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 Montana, go ahead and navigate to the Secretary of State’s Online Business Filing System. You must apply for your registration via an online form.
If you haven’t already, you’ll need to create a Montana ePass account. Once you’re logged in, scroll down to find the SIMS Business Entity Registration, and you’ll be on your way. To make the process as streamlined as possible, have the following information handy:
- Your LLC name (or alternate name if yours isn’t available in Montana)
- The state where your LLC began and the date when it was formed
- Your LLC’s duration
- The address of your principal office (cannot be a P.O. box)
- Your Montana registered agent’s name and address
- Whether your LLC is managed by managers or members
- Names and addresses of managers or managing members
- An authorized signature
Got all that? Don’t forget, you’re also required to submit a Certificate of Good Standing (or Certificate of Existence) from the state where your LLC was formed and it can’t be dated more than six months before your filing.
There’s a $70 fee to foreign qualify, and you can pay it with a credit or debit card through the online filing system.
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
There’s a lot to think about when you’re filing for foreign qualification, but don’t forget to confirm that your business name is compliant with Montana’s naming rules. Your LLC name must:
- Contain a term that identifies its business type, like “limited liability company” or “limited company” or the abbreviations “l.l.c.”, “l.c.”, “llc”, or “lc”
- Not use any words that would imply it’s a business type other than an LLC. Like “corporation,” “partnership,” or “incorporated”
- Be unique from all other business entity names on file with the Montana Secretary of State.
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 Montana 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 Montana. For a $100 service fee, they’ll handle that paperwork so you don’t have to.