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 South Carolina, you may need to complete a foreign qualification in South Carolina before you can expand there.
What happens if I fail to foreign qualify before doing business in South Carolina?
Foreign qualifying is essentially asking permission to do business in the state of South 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 South Carolina yields consequences that are far costlier than registering in the first place.
If you fail to foreign qualify, your business could be cut off from its business activities in South Carolina by the Attorney General. Plus, your LLC will no longer be able to maintain a lawsuit in any South Carolina courts. It’s not worth the risk and better to foreign qualify as soon as you begin doing business in the state.
You can read more about possible penalties in the South Carolina LLC Act, Sections 33-44-1008 and 33-44-1009.
What is considered “doing business” in South Carolina?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in South Carolina? Peruse the state’s LLC Act and you’ll find little specificity on the topic. However, tax laws tell us that you are most often considered to be “doing business” and required to foreign qualify if:
- Your LLC maintains a physical presence in the state, meaning offices, stores, warehouses or other structures
- Employees or other representatives are actively conducting business on behalf of your LLC in the state
Another consideration is taxes. Depending on how you’ve set up your LLC, you may be subject to certain business-related taxes in South Carolina, and foreign qualification notifies the state of your tax status. Without this registration, you could end up with much larger penalties down the road.
If you’re unsure whether or not you need to file for foreign qualification in South Carolina, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in South Carolina?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in South Carolina. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Settling, defending, or maintaining an action or processing in a South Carolina court
- Carrying on activities, like manager meetings, that are related to the LLC’s internal affairs
- Maintaining accounts at in-state financial institutions
- Having offices for the management and transfer of the LLC’s own securities
- Selling through independent contractors
- Soliciting and completing orders outside the state before they become active contracts
- Creating or acquiring indebtedness, mortgages, or security interests in real or personal property
- Securing and collecting debts
- Transacting business in interstate commerce
- Owning an interest in an LLC currently organized in the state
Find a complete list of these exemptions in the South Carolina LLC Act, Section 33-44-1003. After reviewing your LLC’s business activities in the state, if you find them all here, you’re probably off the hook for foreign qualification. Still, it’s wise to seek legal advice if you have questions.
How to Foreign Qualify your LLC in South Carolina
Foreign qualification in South 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 South Carolina, you’ll need to apply for a certificate of authority either through the online filing system or by mailing the appropriate form.
For both filing methods, you’ll need to include two things with your application:
- A Certificate of Existence (or Certificate of Good Standing), not more than 30 days old, from the state where you formed your LLC.
- A payment of $110. Online you can pay by credit card, and by mail, you can include a check made payable to “Secretary of State.”
If your goal is expediency, online filing is your friend. Access the Business Entities Online portal to start the process. Select “Start a new Business Filing” and search your desired or reserved name, then click “Add New Entity.” Follow the onscreen instructions and you’ll be finished before you know it.
Even though it’s not as fast, filing by mail is a reliable option too. The form you need is the “Application for a Certificate of Authority by a Foreign LLC to Transact Business in South Carolina.” When finished, mail your form, Certificate of Existence, and payment to:
Secretary of State
1205 Pendleton Street, Suite 525
Columbia, South Carolina 29201
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
Remember that, like other states, South Carolina has its own specific rules for business entity names. Before submitting all your application, it’s a good idea to confirm that your LLC name follows them. It must:
- Use one of the following terms: “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.”, or “LC”
- Be completely distinguishable from all other registered and reserved names on file with the Secretary of State. Check your name availability by using the Secretary of State’s Business Name Search
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 South 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.
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 South Carolina. For a $100 service fee, they’ll handle that paperwork so you don’t have to.