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 York, you may need to complete a foreign qualification in New York before you can expand there.
What happens if I fail to foreign qualify before doing business in New York?
Foreign qualifying is essentially asking permission to do business in the state of New York. 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 York yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will be prohibited from maintaining any action or proceeding in New York courts, and the Secretary of State will be assigned as your registered agent. On top of that, the Attorney General could cut off your LLC’s business activities in the state.
That means you’re looking at a halted revenue stream and loss of legal footing. No fun. And not something that’s worth risking, which is why foreign qualification is so important.
You can read more about possible penalties on the New York Secretary of State website.
What is considered “doing business” in New York?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in New York? While the state’s LLC Act doesn’t explicitly define “doing business,” the Secretary of State provides a lengthy article on the precedents set by prior court decisions. In most cases, though, you are considered to be “doing business” and need to foreign qualify if:
- You maintain a continuous physical presence in the state, like offices, warehouses, stores or other business structures.
- You have personnel, like salespeople or agents, doing consistent business on behalf of your LLC in the state.
Depending on how you’ve set up your LLC, you might need to pay certain business-specific taxes too. When you foreign qualify, it informs the state of your tax status so they can respond appropriately. If you avoid these taxes by flying under the radar, it will likely lead to more severe penalties later on.
If you’re unsure whether or not you need to file for foreign qualification in New York, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in New York?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in New York. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or settling a lawsuit in New York courts
- Holding meetings of its members or managers
- Having in-state bank accounts
- Maintaining offices/agencies that manage the transfer and/or exchange of its own membership interests
Read it over. Then take a look at the detailed list in Section 803 of the New York LLC Act. If your business activities in the state appear here, you’re likely exempt from foreign qualifying. Still, if you have questions or hesitations, it’s best to seek legal counsel.
How to Foreign Qualify your LLC in New York
Foreign qualification in New York 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 York, you need to get your hands on an “Application for Authority.” Find it here, among other LLC forms and information.
After you download the form, it’s time to dig in. For the sake of expediency, have your information ready when you start. Here’s what you’ll need:
- Your LLC name (and fictitious name if the original isn’t available in New York)
- The state where you formed your LLC
- The date you formed your LLC
- The New York county in which your LLC is located
- Your registered agent’s address
- Your LLC’s address in its home state, or its principal office address
- The name and address of the authorized officer from your LLC’s home state
With your completed form, you’ll also need to include a Certificate of Existence or Certificate of Good Standing from the state where you formed your LLC, and it can’t be more than one year old.
When you’re ready, you can mail or hand deliver your documents to:
Division of Corporations, State Records and Uniform Commercial Code
One Commerce Plaza
99 Washington Ave.
Albany, New York 12231-0001
But, of course, this application process isn’t free. To submit your Application for Authority, you’ll need to pay a $250 fee either by check or money order (made out to “Department of State”) or card (accompanied by a “Credit Card/Debit Card Authorization Form”).
Typical processing time for an Application for Authority is 3-4 weeks. But if you need it sooner, the Department of State offers three expedited service options: 24-Hour ($25), Same Day ($75), and 2-Hour ($150). Designate your expedited service preference on your Credit Card Authorization Form.
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
Like other states, New York has specific rules for naming your business. Before you submit your documents, confirm that your LLC name is in compliance with state law. It must:
- Contain the words “Limited Liability Company,” or the abbreviation “L.L.C.” or “LLC”
- Be distinguishable from all other registered and reserved business entity names on file with the Department of State
- Not use any of the words restricted or prohibited by the state. Find a full list here.
There’s a whole lot more detail about business names in LLC Act Section 204. Take a look as you consider your LLC name.
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 York 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 York. For a $100 service fee, they’ll handle that paperwork so you don’t have to.