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 Dakota, you may need to complete a foreign qualification in South Dakota before you can expand there.
What happens if I fail to foreign qualify before doing business in South Dakota?
Foreign qualifying is essentially asking permission to do business in the state of South 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 South Dakota yields consequences that are far costlier than registering in the first place.
Fail to foreign qualify and the Attorney General could stop your LLC from doing business in the state until you’ve been properly registered and paid any necessary fees. Additionally, transacting business in South Dakota without foreign qualifying will prevent your company from maintaining any lawsuits in the state’s courts.
But here’s what failing to foreign qualify won’t do: it won’t invalidate any of your existing contracts and it won’t stop your LLC from defending itself in any lawsuits. Further, it won’t make one manager or member individually responsible for the company’s debts or other liabilities.
What is considered “doing business” in South Dakota?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in South Dakota? There can be some confusion around this topic since the state’s LLC Act gives very little detail on what it means. However, we know from tax laws that you are typically considered to be “doing business” and required to foreign qualify if:
- Your LLC has an economic, physical presence in the state, which means offices, stores, warehouses, or other structures.
- There are employees, salespeople, representatives, etc. conducting business on behalf of your LLC in the state.
Think of it this way: if your LLC is present and profiting off South Dakota’s economy, you’re doing business there.
If you’re unsure whether or not you need to file for foreign qualification in South Dakota, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in South Dakota?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in South Dakota. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or settling a proceeding in South Dakota courts
- Dealing with internal business affairs, like holding in-state meetings of managers, members, shareholders, etc.
- Maintaining bank accounts
- Having offices/agencies for the transfer, exchange, and registration of the LLC’s own securities
- Selling products or services through independent contractors
- Creating or acquiring indebtedness, mortgages, or security interests in property
- Collecting certain debts
- Facilitating a single transaction—outside of your typical business dealings—within a window of 30 days
- Transacting business in interstate commerce
This list is fairly comprehensive, but it’s a good idea to check out the more detailed on in the LLC Act Section 47-34A-1003. If your only South Dakota business activities appear here, lucky you! You’re most likely exempt from foreign qualifying. Even so, it’s best to take any questions, hesitations, or concerns to an attorney.
How to Foreign Qualify your LLC in South Dakota
Foreign qualification in South 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 South Dakota, you can register through the Secretary of State’s online filing portal, or by submitting an “Application for Certificate of Authority.”
Quite honestly, online is the better option. That’s because it’s both quicker and cheaper. There’s an extra $15 filing fee for all paper forms, and since foreign qualification already costs $750, you probably don’t want to spend much more. On the LLC Forms page, scroll down to the Foreign Limited Liability Companies section and click “File Online” under “Application for Certificate of Authority.” Then, click the “Start a New Business” button and you’ll be off and running.
If you want to use a paper form despite the extra fee, download this form and fill it out in its entirety. When you’ve finished, mail it off or hand deliver it to:
Secretary of State Office
500 E Capitol Ave
Pierre, SD 57501
Whether filing online or by mail, the Secretary of State’s office also requires that you submit a Certificate of Existence or Certificate of Good Standing from the state where you formed your LLC, so don’t forget to include one!
The $750 fee for online filings is payable by card at the end of the filing process. For mailed or hand-delivered forms, include a check – made out to “Secretary of State” – for $765.
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
It’s important to remember the small details too, as these are the things that can trip up your foreign qualification process. As you complete your paperwork, take a moment to confirm that your LLC name follows all of South Dakota’s business naming rules. They state that your name must:
- Use the terms “limited liability company” or “limited company,” or one of the following abbreviations: “L.L.C.,” “LLC,” “L.C.,” or “LC”
- Be distinguishable from all other business entity names on file with the South Dakota Secretary of State. 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 South 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 South Dakota. For a $100 service fee, they’ll handle that paperwork so you don’t have to.