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 Ohio, you may need to complete a foreign qualification in Ohio before you can expand there.
What happens if I fail to foreign qualify before doing business in Ohio?
Foreign qualifying is essentially asking permission to do business in the state of Ohio. 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 Ohio yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will no longer be allowed to maintain a lawsuit in Ohio courts and you will have the Secretary of State appointed as your statutory agent.
However, transacting business without registering will not cancel or invalidate your existing contracts, nor will it prevent your LLC from defending a lawsuit in the state. Still, given the potential penalties, it’s best to foreign qualify as soon as you begin doing business in Ohio.
Find more detail on these penalties in the Ohio Revised Code Section 1705.58.
What is considered “doing business” in Ohio?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Ohio? The state’s Revised Code is fairly vague on the topic, which can lead to some confusion. Fortunately, we know from other state and tax laws that you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has stores, offices, warehouses, distribution centers, or other physical presences in the state
- Salespeople, agents, or other representatives are doing business on behalf of your LLC in the state
And you can’t forget about taxes. Most businesses operating in Ohio, including LLCs, are subject to a Commercial Activity Tax. Foreign qualification informs the state that your company will be paying taxes like this. If you aren’t registered, they can’t tax you. While this sounds tempting at first, it will likely lead to more severe penalties down the road.
If you’re unsure whether or not you need to file for foreign qualification in Ohio, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Ohio?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Ohio. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining or settling actions or proceedings in Ohio courts
- Activities solely concerned with internal affairs, like meetings of managers or members
- Maintaining in-state bank accounts
- Having offices for the transfer, exchange, registration, etc. of the LLC’s own securities
- Selling products or services through independent contractors.
- Soliciting or obtaining orders that are accepted outside the state before becoming contracts
- Creating or acquiring indebtedness
- Collecting debts
- Transacting business in interstate commerce
- A single, isolated transaction, completed within 30 days, that doesn’t fall in line with a series of similar activities
See your only Ohio business activities listed here? If so, you’re likely exempt from foreign qualifying. Even so, it’s a good idea to scan the more detailed list found in the Ohio Revised Code Section 1776.88, and talk to an attorney if you have any questions.
How to Foreign Qualify your LLC in Ohio
Foreign qualification in Ohio 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 Ohio, your ticket to doing business in the state is Form 533b: Registration of a Foreign LLC Company. There are two ways to submit this form: online and by mail.
You may be itching to start doing business in Ohio (or maybe you already have). If expediency is your goal, filing online is the fastest route. Just follow these steps:
- Go to the Secretary of State’s Filing Forms & Fee Schedule page
- Scroll down to find the section titled “Foreign Limited Liability Company Forms”
- Click “File Registration of a Foreign Limited Liability Company Online at Ohio Business Central”
- On the Ohio Business Central portal, select “Submit a Business Filing” and log in or create an account
- Select the appropriate form and follow the directions to complete it
But sometimes you can’t beat the feeling of a nice paper form. To submit via postal mail, click the link to download a PDF version of Form 533b on the Filing Forms & Fee Schedule page. This form must be typed and printed single-sided; the Secretary of State’s office won’t accept handwritten or double-sided forms. When you’ve finished the form, you can mail it off to:
Office of Ohio Secretary of State
P.O. Box 670
Columbus, OH 43216
There are three expedited service options: 2-Day for $100, 1-Day for $200, and 4-Hour for $300. Expedited forms are mailed to a different address: P.O. Box 1390 Columbus, OH 43216. Otherwise, normal processing for mailed documents is 4-5 business days.
Foreign qualification will cost you $99, and you can pay via check or card. When filing online, you’ll be prompted to enter your credit or debit card information. For mailed forms, include a check made out to “Ohio Secretary of State,” or a “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, Ohio has a set of rules for your business name. In all the excitement of extending your LLC to a new state, check to confirm that your name is compliant. Your LLC name must:
- Use one of the following terms: “limited liability company,” “LLC,” “L.L.C.,” “limited,” “ltd.,” or “ltd”
- Not imply that your company is affiliated with a governmental agency
- Not use profanity or slurs
- Be distinguishable from all other business entity registered and reserved names on file with the Ohio Secretary of state
See here for additional information on name distinguishability and requirements.
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 Ohio 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 Ohio. For a $100 service fee, they’ll handle that paperwork so you don’t have to.