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 North Dakota, you may need to complete a foreign qualification in North Dakota before you can expand there.
What happens if I fail to foreign qualify before doing business in North Dakota?
Foreign qualifying is essentially asking permission to do business in the state of North Dakota. 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 Dakota yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will not be able to commence or maintain a lawsuit in North Dakota courts
- Can be stopped by the Attorney General from doing business in the state
- Will owe the state a civil penalty of up to $5,000
- Managers or members who participated in the transaction of business will each be subject for a civil penalty of up to $1,000
So, not only will your LLC owe a hefty fine and lose its revenue stream, but you and your associates will be individually liable as well.
Despite the serious penalties, transacting business without authority will not invalidate your current contracts or stop you from defending a lawsuit in a North Dakota court.
North Dakota Century Code outlines these penalties in more detail in Section 10-32.1-84.
What is considered “doing business” in North Dakota?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in North Dakota? If you go looking for specifics in the state code, you won’t find any; it’s fairly vague on the subject. The Secretary of State’s LLC FAQ page provides a little insight, but more definitively, other state and tax laws tell us that you are considered to be “doing business” in most cases and required to foreign qualify if:
- Your LLC has offices, stores, warehouses, or other physical presences in the state
- There are salespeople, agents, or representatives operating on behalf of your LLC in the state
If you’re unsure whether or not you need to file for foreign qualification in North Dakota, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in North Dakota?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in North Dakota. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, settling, etc. a lawsuit in North Dakota court
- Carrying on activities solely concerning internal affairs, like meetings of managers, shareholders, or members
- Having bank accounts in the state.
- Having offices for the maintenance, transfer, exchange, etc. of the LLC’s own securities
- Holding title to and managing properties in North Dakota
- Creating or acquiring indebtedness
- Collecting debts
- Conducting a single transaction within 30 days that is not part in a series of similar transactions
Find more detail on these exemptions in Section 10-32.1-82 of the North Dakota Century Code. If your only in-state business activities appear here, you’re likely off the hook with foreign qualification. Even so, if you have questions or hesitations, it’s best to get legal advice.
How to Foreign Qualify your LLC in North Dakota
Foreign qualification in North Dakota 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 Dakota, you can take care of the entire process online. Head over to FirstStop, the Secretary of State’s online filing system. On the left side of the page, click “Forms.” Then, select the “Foreign Business Limited Liability Company Certificate of Authority Application” and follow the onscreen instructions.
To streamline the filing process, have your personal and LLC information ready when you begin the form. Here’s what you’ll need:
- Your LLC name exactly as it appears on record with the state where it was formed
- Your LLC’s trade name, if you have one
- The street address and phone number of your LLC’s principal office
- The state where your LLC was formed
- The duration of your LLC
- The name of your North Dakota registered agent (and address, if a noncommercial agent)
- Names and address of your LLC’s managers or managing members
- An authorized signature
Additionally, North Dakota requires a Certificate of Existence or Certificate of Good Standing from your home state, certified not more than 90 days before your filing. Contact the state government to request one.
Find step-by-step video tutorials for FirstStop here.
Foreign qualification isn’t free, though. It comes with a $135 fee, which you can pay online with a credit or debit card. Or, if you choose to print and mail the form, write a check addressed to “Secretary of State” and send it, with your form to:
Secretary of State
State of North Dakota
600 E Boulevard Avenue, Dept. 108
PO Box 5513
Bismarck ND 58506-5513
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 gather your information and complete your form, don’t forget the little details, like making sure that your LLC name complies with North Dakota’s business name requirements. Check that your name:
- Contains the words “limited liability company,” or the abbreviation “L.L.C.” or “LLC”
- Is expressed in letters or characters used in the English language
- Does not use words implying unlawful activity or any other activity other than what is specified in its Articles of Organization. For example, if you run a landscaping business, your name shouldn’t be ABC Frozen Yogurt
- Is distinguishable and not deceptively similar to other business names registered or reserved with the Secretary of State (perform a name availability search here)
Find more information on business name requirements in Section 10-32-10 of the North Dakota Century Code.
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 Dakota 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 North Dakota. For a $100 service fee, they’ll handle that paperwork so you don’t have to.