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 where 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 Tennessee, you may need to complete a foreign qualification in Tennessee before you can expand there.
Important Note: If you’d like to save time and have the foreign qualification paperwork taken care of for you, many of the best LLC services can handle this task for you.
What happens if I fail to foreign qualify before doing business in Tennessee?
Foreign qualifying is essentially asking permission to do business in the state of Tennessee. 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 Tennessee yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will be prohibited from maintaining a lawsuit in any Tennessee court
- Can have any existing legal proceedings stayed by the court
- Will be subject to a fine that is three times the required filing fee for each year it did business without authorization
- Can be stopped from doing business by the Attorney General
Let’s add up those penalties. Say you started doing business in Tennessee on June 1, 2018 but didn’t foreign qualify until December 1, 2021. The minimum fee for registering a foreign LLC is $300 (potentially more depending on how many members you have). Multiplied by three, that’s $900, and you’ve conducted business over four years. So, you’ve got $3,600 in fines right away. Compounding this penalty is the fact that the Attorney General can cut off your LLC’s revenue stream by restricting its business activity. Quite simply, it’s best to avoid these penalties completely by foreign qualifying right away.
You can check out the legal context for these penalties in the Tennessee LLC Act, Section 913.
What is considered “doing business” in Tennessee?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Tennessee? Unfortunately, the state’s LLC Act doesn’t directly define this, which can lead to some confusion. But tax laws indicate that you are considered to be “doing business” and required to foreign qualify if:
- Your LLC has stores, offices, warehouses, distribution centers, or some other type of physical presence in the state.
- Salespeople, employees, or other representatives are conducting business on your behalf in the state.
And, of course, you can’t escape LLC taxes. Most business entities operating in Tennessee must pay an annual franchise tax, along with other potential business taxes. Foreign qualification lets the state know that you will be paying these taxes. If you try to avoid them by flying under the radar, it will most likely lead to severe penalties down the road. It’s important to always stay on top of your LLC’s taxation requirements to avoid any unwelcome surprises.
If you’re unsure whether or not you need to file for a foreign qualification in Tennessee, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Tennessee?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Tennessee. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or settling a claim or proceeding in Tennessee courts
- Activities and events that deal with internal business affairs, like holding LLC member and/or manager meetings
- Maintaining bank accounts
- Having offices for the transfer, exchange, and/or registration of the corporation’s own securities
- Selling through independent contractors
- Soliciting or completing orders that require acceptance outside of Tennessee before they turn into contracts
- Creating or acquiring indebtedness
- Securing and collecting certain debts
- Owning real or personal property in Tennessee
- A single, isolated transaction, taking place within 30 days, that isn’t part of your typical business activity
- Transacting business in interstate commerce
Time to take a step back. Make a list of your LLC’s activities in Tennessee. Do you find them all here? If so, great! You can likely skip foreign qualification. But if you’re unsure, it’s best to speak with an attorney. You can find a more detailed list of these exemptions on the Business Entity Filings FAQ page or in Tennessee’s LLC Act, Section 902.
How to Foreign Qualify Your LLC in Tennessee
Foreign qualification in Tennessee 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 Tennessee, you need to apply for a Certificate of Authority, available both online and on paper.
Both filling methods will require you to submit a Certificate of Good Standing from the state where you formed your LLC, so request that first, then work on your application for authority while you wait.
Sometimes speed is key, especially if you’ve already begun doing business in Tennessee. If you need to foreign qualify quickly, filing online is your best option. Head to the Business Services Online page and choose “Form or Register a New Business.” Then, just click the button that says “Start Now!” and follow the instructions. You’ll be done in no time.
But postal mail is a reliable option as well. Download the “Application for Certificate of Authority” and enter all the necessary information. Pages 1-4 have in-depth, step-by-step instructions to help you complete the form. Then mail or hand-deliver it, along with your Certificate of Good Standing and filing fee, to:
Tennessee Secretary of State
ATTN: Corporate Filing
312 Rosa L. Parks Ave FL 6
Nashville TN 37243
The filing fee in Tennessee is an interesting case. You’re charged based on how many members your LLC has. You’re charged $50 per existing member at the time of filing, with a minimum of $300 and a maximum of $3,000. So, if your LLC has eight members, that’s a $400 fee. If it has 15 members, that’s $750. If it has two members, that’s the minimum of $300.
Here are your payment options for each filling method:
- Online: Credit or debit card (or you can print your electronic form and mail it with a check)
- Mail: Check, cashier’s check, or money order made payable to the “Tennessee Secretary of State”
- In person: Card, check, or cash
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
In all the excitement of expanding your business to Tennessee, don’t forget that your LLC name needs to comply with the state’s specific requirements. Double-check to make sure that your name:
- Uses a term that designates its business type, like “limited liability company,” “L.L.C.,” or “LLC.”
- Does not contain language that implies affiliation with any “fraternal, veterans’, service, religious, charitable or professional organization” unless that affiliation is recorded with the Secretary of State’s office.
- Does not imply that it is a government agency.
- Is distinguishable in the Secretary of State’s records from all other Tennessee business entity names. Perform a Tennessee LLC name search to make sure the name you want is available.
You can also reserve your Tennessee business name if you’re not quite ready to foreign qualify your LLC.
Should I hire a service to file my Tennessee foreign LLC?
Considering all the work that goes into expanding your business to a new state, you’ve likely got a lot on your plate. Rather than trying to juggle everything yourself, you can bring on an individual or company to help you secure your LLC’s Tennessee foreign qualification.
For example, business attorneys understand all the legal nuances involved, providing peace of mind that the job will get done correctly. But if you go this route, be sure you have the budget for it. Lawyer fees for Tennessee foreign LLC qualifications can be a prohibitively expensive option for businesses operating on tight budgets.
If you’re operating on a limited budget, but still want to have your Tennessee foreign LLC professionally registered, go with an online business service provider. There are plenty of reputable companies that can help you out with Tennessee foreign qualifications, but here are a couple of our favorites:
- MyCompanyWorks ($99): MyCompanyWorks is one of the only service providers offering foreign qualifications for less than $100. This company receives excellent customer reviews and has a great track record of success, making it a smart choice for a wide range of entrepreneurs.
- IncFile ($149): IncFile offers a free LLC formation service that we have always appreciated, and its pricing for foreign qualifications is a reasonable $149. IncFile has the best customer feedback reputation in the industry, with tens of thousands of positive reviews available online.
- Northwest Registered Agent ($225): Northwest is more of a premium service, with the best customer support in the industry, in our opinion. They also include a year of their namesake registered agent service with every foreign qualification. There’s a reason Northwest is our #1 pick among the best registered agent services!
Frequently Asked Questions
When Is the Best Time to Foreign Qualify an LLC?
We think you should foreign qualify your LLC before you begin conducting business in a new state. If you don’t, your business could be subject to a broad range of fines and penalties for operating an LLC in a state where you don’t have permission to do so.
How Long Does It Take Tennessee to Process a Foreign Qualification?
Unfortunately, Tennessee provides no official guidance regarding turnaround times. The state has a lengthy FAQ section on the Secretary of State’s website that inexplicably excludes all information about processing speeds. Scanning some competitors’ websites, their estimates seem to vary widely, from just a few days up to several weeks, which indicates to us that they don’t really know either. We would advise filing your foreign qualification documents several weeks early to make sure Tennessee will have time to process them.
Where Can I Learn More About the Tennessee LLC Licensing and Permitting Requirements?
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Tennessee state law. For more information about business licenses and more in this state, check out Tennessee’s helpful Licenses and Permits webpage.
Do I Need to File an Annual Report for My Foreign LLC in Tennessee?
Yes. Whether you operate a domestic or foreign LLC in this state, you are required to file a Tennessee LLC Annual Report.
What Is the Total Expected Cost of Operating an LLC in Tennessee?
The overall costs of operating a Tennessee LLC can vary considerably based on the specifics of your business. However, we created a helpful guide to help you identify and plan for every expense your LLC will face in this state.
Should I Use an LLC Service, Hire an Attorney, or Foreign Qualify My Own LLC?
The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.
Using an LLC service means your business will be foreign qualified by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.
How Do Online LLC Services Work?
Using an online LLC service removes much of the hassle from the foreign qualification process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your Tennessee registered agent.
The service then registers your Application for Certificate of Authority with the state to qualify your LLC to do business in Tennessee.
Are LLC Service Websites Legit?
Absolutely. There are quite a few reputable companies offering LLC formation service and foreign qualifications these days, including the two options we discussed earlier: MyCompanyWorks and IncFile.
In fact, while we certainly have our opinions about which ones offer the best pricing and features, every one of the incorporation services we discuss on this website is entirely legitimate and trustworthy.
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 Tennessee 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.