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 Pennsylvania, you may need to complete a foreign qualification in Pennsylvania before you can expand there.
What happens if I fail to foreign qualify before doing business in Pennsylvania?
Foreign qualifying is essentially asking permission to do business in the state of Pennsylvania. 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 Pennsylvania yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will be prohibited from commencing or maintaining any lawsuits in Pennsylvania courts. However, it won’t invalidate your current contracts, nor will it prevent you from defending any in-state lawsuit. Further, a single member or manager of your LLC cannot be held responsible for your companies debts or other liabilities just because you conducted unauthorized business in the state.
For more on these penalties and other foreign LLC requirements, take a look at the Pennsylvania General Assembly, Title 15.
What is considered “doing business” in Pennsylvania?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Pennsylvania? Unfortunately, there isn’t a clear answer in the state laws, which can potentially lead to some confusion. However, tax laws tell us that you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has some type of physical economic presence in the state, like offices, stores, warehouses, and similar structures.
- Your employees and/or other representatives are making in-state transactions on your behalf.
Generally, if your LLC makes a profit off of Pennsylvania’s economy, you’re doing business there.
If you’re unsure whether or not you need to file for foreign qualification in Pennsylvania, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Pennsylvania?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Pennsylvania. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Defending, mediating, maintaining, or settling a lawsuit in a Pennsylvania court
- Dealing with internal business affairs, like holding member or manager meetings
- Having bank accounts
- Maintaining offices or agencies for the transfer, exchange, or registration of the LLC’s own securities
- Selling products or services through independent contractors
- Facilitating and completing orders outside the state before they turn into contracts
- Creating or acquiring indebtedness
- Securing and collecting debts
- Completing a single transaction that is not in a series of similar transactions
- Owning, without more, property
- Transacting business in interstate or foreign commerce
While this list is fairly comprehensive, the Pennsylvania General Assembly has one that offers more detail in Title 15 § 403. See all of your Pennsylvania business activities here? Nice! You’re likely off the hook with foreign qualification. But you should still speak with an attorney if you have any hesitations.
How to Foreign Qualify your LLC in Pennsylvania
Foreign qualification in Pennsylvania 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 Pennsylvania, you need to file a “Foreign Registration Statement” by mail or online.
Online filing is the the quickest way to get your business registered. To get started, go to PENN Live, Pennsylvania’s online filing portal. You’ll need to create an account before doing anything else. After doing so, find the form for foreign registration and follow the instructions to input your information.
Your second option is postal mail. For this method, download the “Foreign Registration Statement” from the Department of State’s Registration Forms page. The form itself has in-depth instructions for its completion on pages 3-5. To comply with D.O.S. standards, fill it out electronically using a PDF filler like Adobe Acrobat, or – if you want to write by hand – using blue or blue-black ink. When you’ve completed the form, send it to:
Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105-8722
But don’t send it just yet! Along with your finished form, you will need to include two more items:
- A “Docketing Statement” (to ensure efficient processing)
- A $250 fee, payable by card online and by check (made out to “Department of State”)
Typical processing time is 7-10 business days, plus mailing time. But if you’re in a hurry, you have three expedited service options: same-day for $100, three-hour for $300, and one-hour for $1,000. To request one of these options, include an “Expedited Service Request Form” with your other documents.
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
One more detail to keep in mind. Pennsylvania has its own requirements for business entity names. To avoid delays in your registration process because of name noncompliance, check to confirm that your business name follows all the rules.
Your LLC name must use the term “company,” “limited,” or “limited liability company,” or an abbreviation of one of those terms. Plus, it must be available in the Department of State records and distinguishable from all other registered and reserved business entity names. Check your name’s availability here.
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 Pennsylvania 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 Pennsylvania. For a $100 service fee, they’ll handle that paperwork so you don’t have to.