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.
What happens if I fail to foreign qualify before doing business in Texas?
Foreign qualifying is essentially asking permission to do business in the state of Texas. 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 Texas yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Cannot maintain an action, lawsuit, or proceeding in a Texas court.
- Can be stopped from doing business in the state by the attorney general.
- Will be subject to a civil penalty equal to all fees and LLC taxes that would have been imposed since the date you were required to register.
- Will be subject to a $750 late registration fee for each calendar year you’ve been doing business (plus the initial $750 it costs to register).
Let’s add up those penalties. If you don’t foreign qualify, your business will be charged a minimum of $1,500 for the first year you fail to foreign qualify, plus $750 for each additional year, plus the taxes you would have been paying since starting your business in Texas.
Say you started doing business in Texas on June 1, 2019 but didn’t foreign qualify until December 1, 2022. You would owe $3,000 in late fees plus the original $750 fee, for a grand total of $3,750. And that’s not even considering the retroactive taxes you’d have to pay and the fact that the attorney general could completely cut off your business transactions. It’s not something you want to risk.
You can read more about possible penalties on the Texas Secretary of State website.
What is considered “doing business” in Texas?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Texas? You are considered to be “doing business” in Texas and required to foreign qualify if:
- You have a physical presence in the state. Offices, warehouses, stores, and mailboxes located in Texas all count as physical presences.
- You have salespersons or representatives in the state who are working on behalf of your business.
Another important consideration is state tax. Remember that any income made within the state of Texas is also subject to the state’s franchise tax. Foreign qualifying your business lets the state know that you might be filing taxes on money earned while doing business there. 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 Texas, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Texas?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Texas. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Defending or settling a lawsuit in a Texas court.
- Dealing with internal business affairs, like holding meetings for the LLC’s members or managers in the state.
- Having a business bank account in the state.
- Voting in the interest of an entity your LLC has acquired.
- Selling products or services through independent contractors.
- Securing and collecting certain debts.
- Transacting business in interstate commerce
- Completing a single transaction—outside of your typical business dealings—within a window of 30 days.
- Owning real or personal property in Texas
For a full list of exemptions, see section 9.251 of the Texas Business Organization Code. If your only business actions in Texas appear on this list, you are exempt from filing a foreign qualification.
How to Foreign Qualify Your LLC in Texas
Foreign qualification in Texas 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 Texas, you can do so by filing Form 304 with the Texas Secretary of State. The fastest way to file is online through the Texas SOSDirect website.
You can also download and print the form online to file by mail to P.O. Box 13697, Austin, TX 78711-3697 or by fax to (512) 463-5709.
If you’re located in or near Austin, you can file in person at James Earl Rudder Office Building, 1019 Brazos, Austin, TX 78701.
There is a $750 application fee to foreign qualify an LLC in Texas, along with any late fees that may be applicable. You can use the Texas Secretary of State’s late fee calculator to assess your amount based on the date you started doing business within the state.
You can pay your fees by personal check, money order, LegalEase debit card, or any major credit card. Checks and money orders must be made out to the Texas Secretary of State. There’s an additional 2.7% convenience fee if you pay with a card.
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 foreign qualified and you’re embarking on another chapter in the life of your business.
Name Requirements to Remember
Like other states, Texas also has business entity name requirements. When foreign qualifying your LLC in Texas, you must register under a name that:
- Contains a term of organization that identifies it as an LLC (like Ltd. or LLC)
- Does not contain any word or phrase that implies you’re engaged in actions you aren’t authorized to pursue (see Texas Administrative Code Ch.79 for details)
- Is available and distinguishable in the Secretary of State records from the name of other registered or reserved business entities
- Perform a Texas LLC name search to make sure the name you want is available
- You can also reserve your Texas business name if you’re not quite ready to foreign qualify your LLC
Should I hire a service to file my Texas 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 Texas 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 Texas 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 Texas foreign LLC professionally registered, go with an online business service provider. There are plenty of reputable companies that can help you out with Texas 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 Texas to Process a Foreign Qualification?
You’ll typically need to wait roughly five to seven business days for the state of Texas to process your foreign LLC filing, according to the Secretary of State’s website.
Where Can I Learn More About the Texas LLC Licensing and Permitting Requirements?
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Texas state law. For more information, we recommend visiting the Texas Economic Development Division’s Business Permit Office.
Do I Need to File a Franchise Tax Public Information Report for an LLC Foreign Qualified in Texas?
Yes. Just like if you operate a domestic LLC in this state, you are required to file a Texas LLC Franchise Tax Public Information Report for a foreign LLC operating here.
What Is the Total Expected Cost of Operating an LLC in Texas?
The overall costs of operating a Texas 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 registered agent.
The service then registers your Certificate of Authority (or similarly named document) with the state to qualify your LLC to do business there.
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 Texas 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.
Foreign Qualification in All 50 States
We break down the Foreign Qualification filing process in detail in all 50 states. View all of our Foreign Qualification guides below.