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 New Mexico, you may need to complete a foreign qualification in New Mexico before you can expand there.
What happens if I fail to foreign qualify before doing business in New Mexico?
Foreign qualifying is essentially asking permission to do business in the state of New Mexico. 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 New Mexico 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 actions or proceedings in New Mexico courts
- Be stopped from transacting business in the state
- Owe the state all the fees it would have paid during its time in New Mexico had it been properly registered
- Be subject to a civil penalty of $200 per year it transacted unauthorized business in the state
Let’s consider those penalties. First, you have the immediate monetary hit, the accumulation of fees and the $200/per year. On top of that, your LLC will lose its revenue stream when it’s cut off from doing business. Finally, you won’t have a way to recover debts settle other legal matters. It’s best not to risk it and foreign qualify as soon as you start doing business.
Transacting unauthorized business, however, won’t stop your LLC from defending a lawsuit or invalidate any of its current contracts.
For further reading, take a look at the New Mexico LLC Act, Section 53-19-53.
What is considered “doing business” in New Mexico?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in New Mexico? If you’re looking in the state’s LLC Act, you won’t find an explicit description. However, other state and tax laws tell us that you are considered to be “doing business” in most cases and required to foreign qualify if:
- You maintain offices, stores, warehouses, or other physical presences in New Mexico
- Your LLC has salespeople, agents, or other representatives doing business on its behalf in the state
Another factor in foreign qualification is taxes. New Mexico requires LLCs to pay a franchise tax each year (if they pay a federal income tax). By foreign qualifying, you’re letting the state know that you’ll need to pay this tax. While it might be tempting to avoid qualifying and, in turn, the tax, don’t do it! This will end in more penalties down the road.
If you’re unsure whether or not you need to file for foreign qualification in New Mexico, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in New Mexico?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in New Mexico. 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 New Mexico courts
- Carrying on activities solely related to internal affairs, like meetings of members or managers
- Maintaining bank accounts
- Having offices for the transfer and/or exchange of the LLC’s own securities
- Selling products or services through independent contractors
- Creating or acquiring indebtedness
- Securing debts
- Earning royalties or nonoperating mineral interests in transactions outside New Mexico
- Owning real or personal property in New Mexico
- Transacting business in interstate commerce
- Conducting a single transaction, not in a series of similar ones, within 30 days
If your only business activities in New Mexico appear here, you are most likely exempt from foreign qualifying. You can find a more in-depth list in the New Mexico LLC Act, Section 53-19-54. If you have questions, it’s wise to seek legal advice.
How to Foreign Qualify your LLC in New Mexico
Foreign qualification in New Mexico 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 New Mexico, you can register by mail or in person.
Pages 1-3 of this form contain detailed instructions for its completion. Follow them carefully and your registration process will be quick and smooth. For a quick reference, here’s the information you’ll need:
- Your LLC name (and an alternate name if you original is unavailable in New Mexico)
- The state where your LLC was formed
- The date of your LLC’s formation
- Your LLC’s principal office address from your domestic state (and mailing address, if different)
- The name and address of your New Mexico registered agent
- Name(s) of the person(s) in whom the LLC’s management is vested
Ready to submit your form? Not so fast. There are three other documents you’ll need to include:
- A Certificate of Existence or Good Standing from your domestic state
- A Statement of Acceptance signed by your New Mexico registered agent (page 6)
- A Document Delivery Instruction From (page 7)
Once you’ve compiled everything you need, mail or hand deliver it to:
Business Services Division
325 Don Gaspar, Suite 300
Santa Fe, New Mexico 87501
And don’t forget your $100 fee. Pay this with a check or money order made out to “New Mexico Secretary of State.”
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
As you’re gathering your information, organizing your forms, and making sure your filing is in order, you’ll want to also confirm the details of your business name’s compliance with state requirements. In New Mexico, your LLC name must:
- Use a term that identifies its business type, like “limited liability company,” “limited company,” “L.L.C.,” “LLC,” “L.C.,” or “LC”
- Be available and distinguishable from every registered and reserved business name on record with the 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 New Mexico 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 New Mexico. For a $100 service fee, they’ll handle that paperwork so you don’t have to.