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 Rhode Island, you may need to complete a foreign qualification in Rhode Island before you can expand there.
What happens if I fail to foreign qualify before doing business in Rhode Island?
Foreign qualifying is essentially asking permission to do business in the state of Rhode Island. 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 Rhode Island yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business will be banned from commencing or maintaining any lawsuits in state courts. Plus, the Attorney General can restrain your LLC from conducting any business in the state until it has properly registered.
This means that you risk losing not only some of your company’s legal rights in Rhode Island but also its stream of income, which could paralyze your LLC.
Even so, conducting business without foreign qualifying will not invalidate your existing contracts and it won’t stop you from defending any lawsuits in Rhode Island.
What is considered “doing business” in Rhode Island?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Rhode Island? The state’s LLC Act does little to shed light on this question, but according to other state and tax laws, you are considered to be “doing business” and required to foreign qualify if:
- Your LLC has an established physical presence, or nexus, in the state, like offices, warehouses, stores, or other structures.
- Salespeople and other employees or representatives are conducting business on behalf of your LLC in the state.
Or, you can think of it this way: if your LLC is profiting off of Rhode Island’s economy, you are doing business there.
Another important factor is taxes. Rhode Island imposes certain taxes on entities doing business there, and foreign qualification lets the state know you’ll be filing these taxes. You may be tempted to fly under the radar so you can avoid these taxes, but resist the urge! This will lead to greater penalties in the future.
If you’re unsure whether or not you need to file for foreign qualification in Rhode Island, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Rhode Island?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Rhode Island. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining or defending any action or proceeding in a Rhode Island court
- Any activities that solely pertain to internal affairs, such as manager or member meetings
- Maintaining in-state bank accounts
- Having offices for the transfer, exchange, and/or registration of the LLC’s own securities
- Selling products or services through independent contractors
- Facilitating and completing orders outside the state before they become binding contracts
- Creating or acquiring evidence of debt
- Collecting debts
- Transacting business in interstate commerce
- Completing an isolated transaction, not one among several similar transactions, within 30 days
Check out Rhode Island’s LLC Act, Section 7-16-54 for a more detailed list. If all of your business activities in Rhode Island are present, you’re likely exempt from foreign qualification. But again, it’s best to seek legal advice if you’re unsure.
How to Foreign Qualify your LLC in Rhode Island
Foreign qualification in Rhode Island 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 Rhode Island, you will need to download, complete, and mail (or hand deliver) an “Application for Registration” to the Secretary of State.
There is no online filing option for this particular form, so download a paper copy here. If you’re navigating from the S.O.S. Business Forms page, click “Foreign Limited Liability Company,” and then, next to “Application for Registration,” click Download. Pages one and two of the form contain specific, step-by-step instructions for its completion.
Gather your information ahead of time so that you can finish your form in one brief sitting. Here’s what you’ll need:
- Your LLC name, which must match the records of your home state exactly. Or, if your name is unavailable in Rhode Island, the fictitious name it intends to use
- The state where your LLC was formed, and the date of its formation
- The period of your LLC’s duration (on-going or with a date for dissolution)
- The name and address of your Rhode Island registered agent
- The purpose of your LLC
- Your LLC’s principal office address and mailing address
- Management structure (managed by members or managers) – list the name and address of one or more manager if applicable
Additionally, Rhode Island requires that you include a Certificate of Existence or Good Standing from your home state with the filing. And don’t forget that registration isn’t free! The filing fee is $150, which can be paid by check, made out to “Rhode Island Department of State.”
All finished? Send your form, Certificate of Existence, and payment to:
Division of Business Services
148 W. River Street
Providence, Rhode Island 02904-2615
If you happen to live near Providence, you can also drop these documents off in person at the same address. You may pay via card or cash when walking in a document.
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
When completing the necessary paperwork for this filing, check to confirm that your LLC name is in compliance with Rhode Island’s specific business name requirements. Otherwise, your application could be rejected. Your name must:
- End with the words “limited-liability company” or the upper/lower case letters “l.l.c.” with or without punctuation
- Distinguishable from all other business entity names registered or reserved with the Secretary of State (check your name’s availability here)
For a full list of naming requirements, see the Rhode Island LLC Act, Section 7-16-9.
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 Rhode Island 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 Rhode Island. For a $100 service fee, they’ll handle that paperwork so you don’t have to.