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 where 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 North Carolina, you may need to complete a foreign qualification in North Carolina 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, many of the best LLC services can handle this task for you.
What happens if I fail to foreign qualify before doing business in North Carolina?
Foreign qualifying is essentially asking permission to do business in the state of North Carolina. 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 North Carolina 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 lawsuits in North Carolina courts.
- Will owe the state all fees and LLC taxes it would have paid had it been properly registered during its time in the state. This includes late fees for failure to pay on time.
- Will be charged with a civil penalty of $10 per day it transacted business without authority, up to $1,000 per year.
Let’s add up those penalties. Say you’ve been doing unauthorized business in North Carolina for three years. That’s $3,000 right off the bat ($1,000 per year). Then, add the cost of an Application for Authority ($250) and three annual reports ($200 each). That comes to a grand total of – drum roll please – $3,850. And this isn’t even including taxes and potential late fees, which could make that total much higher.
This won’t, however, cancel or invalidate any of your current contracts or prevent you from defending a lawsuit.
If you’re interested in the law behind these penalties, read the North Carolina Revised Statutes, Section 57D-7-02.
What is considered “doing business” in North Carolina?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in North Carolina? State law is vague on the subject, which can lead to some confusion. But according to other state and tax laws, you are considered to be “doing business” in most states and required to foreign qualify if:
- Maintain any kind of physical presence in the state. This means offices, stores, warehouses, distribution centers, or other structures.
- There are salespeople, agents, or other representatives making transactions on behalf of your LLC in the state.
LLCs with certain structures are required to pay a franchise tax each year in North Carolina. But the state won’t know to tax you unless you’ve foreign qualified. If you’re thinking “it’d be easier to skip qualification and avoid the tax,” don’t be tempted! This will likely lead to heftier fines in the future. For more on the franchise tax, see the North Carolina Department of Revenue website. It’s important to always stay on top of your LLC’s taxation requirements to avoid any unwelcome surprises.
If you’re unsure whether or not you need to file for a foreign qualification in North Carolina, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in North Carolina?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in North Carolina. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Defending or settling a lawsuit in a North Carolina court
- Any action that solely concerns internal affairs, like holding meetings of LLC members and/or managers
- Maintaining in-state bank accounts
- Having offices/agencies for the maintenance or exchange of the LLC’s own equity, ownership interests, or securities
- Soliciting or procuring orders to be completed outside the state before becoming contracts
- Making or investing in loans
- Collecting debts
- Transacting business in interstate commerce
- A single, isolated transaction outside of normal business activity and not in line with similar activities
- Selling through independent contractors
- Owning real or personal property in North Carolina
While this list is fairly comprehensive, you can find a bit more detail in North Carolina statutes, Section 57D-7-01. If your only business activities in North Carolina appear on the list, you’re most likely exempt from foreign qualifying. Still, it’s a good idea to speak with an attorney if you’re unsure.
How to Foreign Qualify Your LLC in North Carolina
Foreign qualification in North Carolina 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 North Carolina, the Secretary of State’s website has a helpful page containing all the information you’ll need. Feel free to browse or look for any particular information you might need. But when you’re ready to begin the filing process, click “Get Started” under “Preparing and submitting the documents.” Then, select “Submitting the document for filing.”
There are three options for submission: online, mail, and in person. Click the one you prefer to get instructions. For all three, you’ll need to complete a Form L-09: Application for Certificate of Authority for an LLC, so do that first. Then:
- Online: Go to the PDF Upload Portal. If you don’t have one already, create an account. You’ll want to “upload a creation filing,” and follow the instructions. At the end, you’ll be prompted to pay the $250 fee with a credit or debit card.
- Mail: Complete your form and mail it, with a $250 check (payable to the “North Carolina Secretary of State”) to Business Registration Division, P.O. Box 29622, Raleigh, North Carolina 27626-0622.
- In Person: If you live in or near Raleigh, feel free to drop off your documents at 2 South Salisbury Street, Raleigh, NC 27601, across from the State Capitol Building. The office is open 8:00am-5:00pm, Monday through Friday. In person, pay your fee with a check or money order made out to the “North Carolina Secretary of State.”
No matter how you file, the state requires you to include a Certificate of Good Standing – not more than six months old – from the state where you formed your LLC. Reach out to your home state’s government to obtain one.
The typical processing time is 5-7 business days. But if you’re itching to do business in North Carolina and you need it sooner, you can pay $100 for 24-hour service or $200 for same-day service.
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 send off your documents, double-check to confirm that your LLC name follows all of North Carolina’s business name requirements. To comply, your name must:
- Use a term that designates its business type, like “limited liability company,” “limited company,” “L.L.C.,” “LLC,” “L.C.,” or “LC.”
- Not use any of the Secretary of State’s “prohibited words.” Find a full list here.
- Be available for use and distinguishable from the names of all other business entities on file with the Secretary of State. Perform a North Carolina LLC name search to make sure the name you want is available.
You can also reserve your North Carolina business name if you’re not quite ready to foreign qualify your LLC.
Should I hire a service to file my North Carolina foreign LLC?
Considering all the work that goes into expanding your business to a new state, you’ve likely got a lot on your plate. Rather than trying to juggle everything yourself, you can bring on an individual or company to help you secure your LLC’s North Carolina foreign qualification.
For example, business attorneys understand all the legal nuances involved, providing peace of mind that the job will get done correctly. But if you go this route, be sure you have the budget for it. Lawyer fees for North Carolina foreign LLC qualifications can be a prohibitively expensive option for businesses operating on tight budgets.
If you’re operating on a limited budget, but still want to have your North Carolina foreign LLC professionally registered, go with an online business service provider. There are plenty of reputable companies that can help you out with North Carolina foreign qualifications, but here are a couple of our favorites:
- MyCompanyWorks ($99): MyCompanyWorks is one of the only service providers offering foreign qualifications for less than $100. This company receives excellent customer reviews and has a great track record of success, making it a smart choice for a wide range of entrepreneurs.
- IncFile ($149): IncFile offers a free LLC formation service that we have always appreciated, and its pricing for foreign qualifications is a reasonable $149. IncFile has the best customer feedback reputation in the industry, with tens of thousands of positive reviews available online.
- Northwest Registered Agent ($225): Northwest is more of a premium service, with the best customer support in the industry, in our opinion. They also include a year of their namesake registered agent service with every foreign qualification. There’s a reason Northwest is our #1 pick among the best registered agent services!
Frequently Asked Questions
When Is the Best Time to Foreign Qualify an LLC?
We think you should foreign qualify your LLC before you begin conducting business in a new state. If you don’t, your business could be subject to a broad range of fines and penalties for operating an LLC in a state where you don’t have permission to do so.
How Long Does It Take North Carolina to Process a Foreign Qualification?
You’ll typically need to wait roughly 5-7 business days. But if you’re itching to do business in North Carolina and you need it sooner, you can pay $100 for 24-hour service or $200 for same-day service.
Where Can I Learn More About the North Carolina LLC Licensing and Permitting Requirements?
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with North Carolina state law. For more information about business licenses and more in this state, check out the state’s brief, yet effective, Licenses and Permits webpage.
Do I Need to File an Annual Report for My Foreign LLC in North Carolina?
Yes. Whether you operate a domestic or foreign LLC in this state, you are required to file a North Carolina LLC Annual Report.
What Is the Total Expected Cost of Operating an LLC in North Carolina?
The overall costs of operating a North Carolina LLC can vary considerably based on the specifics of your business. However, we created a helpful guide to help you identify and plan for every expense your LLC will face in this state.
Should I Use an LLC Service, Hire an Attorney, or Foreign Qualify My Own LLC?
The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.
Using an LLC service means your business will be foreign qualified by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.
How Do Online LLC Services Work?
Using an online LLC service removes much of the hassle from the foreign qualification process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your North Carolina registered agent.
The service then registers your Application for Certificate of Authority with the state to qualify your LLC to do business in North Carolina.
Are LLC Service Websites Legit?
Absolutely. There are quite a few reputable companies offering LLC formation service and foreign qualifications these days, including the two options we discussed earlier: MyCompanyWorks and IncFile.
In fact, while we certainly have our opinions about which ones offer the best pricing and features, every one of the incorporation services we discuss on this website is entirely legitimate and trustworthy.
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 North Carolina 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.