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 Vermont, you may need to complete a foreign qualification in Vermont before you can expand there.
What happens if I fail to foreign qualify before doing business in Vermont?
Foreign qualifying is essentially asking permission to do business in the state of Vermont. 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 Vermont 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 Vermont court
- Can be stopped from doing business in the state by the Attorney General
- Will owe the state a civil penalty of $50 per day that it transacted unauthorized business, up to $10,000 per year
- Will be liable for all the fees it would have paid during its time doing business in Vermont had it been properly registered
Let’s say your LLC transacted business all year in 2017 and 2018, and for 60 days in 2019. You would owe $10,000 per year for the first two years and $3,000 for this year. That’s $23,000, and we haven’t even added the other miscellaneous fees yet, like $125 for the Articles of Organization and $140 per Annual Report. Throw those in and you’ve got a grand total of $23,545. That’s a hefty fine, and it would be even tougher to pay if the Attorney General but off your income-generating activities in the state.
In short, it’s not worth the risk. Foreign qualify as soon as you begin doing business in Vermont.
Read over detailed descriptions of these penalties in the Vermont Statutes 11-008-4119.
What is considered “doing business” in Vermont?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Vermont? There isn’t a whole lot of clarity on the subject in Vermont’s LLC Act, but we know from certain tax laws that you are considered to be “doing business” in most cases and required to foreign qualify if:
- Your LLC maintains a continued physical presence in the state, meaning offices, stores, warehouses, or other structures.
- Your LLC has a human presence doing business in the state, like salespeople, employees, or other representatives operating on behalf of the company
More generally, if your LLC consistently profits off Vermont’s economy, you’re doing business there.
Depending on how you’ve elected to set up your LLC, you may have to pay certain business taxes, and foreign qualification is how the state knows to apply them. If you try to avoid these taxes by flying under the radar, it will lead to more severe penalties in the long run.
If you’re unsure whether or not you need to file for foreign qualification in Vermont, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Vermont?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Vermont. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Settling, defending, or maintaining a lawsuit in Vermont courts
- Carrying on activities solely related to internal affairs, like manager or shareholder meetings
- Keeping accounts with financial institutions
- Having offices for the management of the LLC’s own securities
- Selling products or services through independent contractors
- Organization and facilitating orders to be completed outside the state before becoming contracts
- Creating or acquiring indebtedness
- Securing and collecting certain debts
- Owning real or personal property in Vermont
- A single, isolated transaction, not part of a series of similar business activities
- Transacting business in interstate commerce
Think over all your business activities in Vermont. If everything you do appears on this list (and/or the more detailed one here) you’re likely exempt from foreign qualifying. Still, if you have any hesitations, it’s best to speak with an attorney.
How to Foreign Qualify your LLC in Vermont
Foreign qualification in Vermont 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 Vermont, you can register by using the Online Business Services Center or by requesting a paper application.
For either option, you’ll need to obtain and submit a Certificate of Existence (or Certificate of Good Standing) from the state where you formed your LLC. It’s a good idea to request that from your home state before you begin the registration process.
The Secretary of State’s office strongly recommends filing online because it’s faster and easier for everyone involved. There’s a helpful guide available on the Resources section of the website that walks you through the process. Head over to the online filing portal and create an account. Then follow the onscreen prompts to enter your information and complete the form. Near the end, the site will direct you to pay the $125 filing fee with a credit or debit card.
Mailed submissions are still allowed, even though the Secretary of State’s office advises against them, but you’ll need to submit a special request for the application. Submit this form and the S.O.S. will send it your way. Once you’ve received the form, fill it out, write a check for $125, and send it all to:
Vermont Secretary of State
128 State Street
Montpelier, Vermont 05633-1104
Average processing time for online submissions is less than one day, and for mailed forms, it’s 7-10 business days.
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
Like other states, Vermont has its own set of rules for business entity names. Take a moment to confirm that your LLC name complies with all the state’s naming requirements. It must:
- Use a term that identifies it’s business type, like “limited liability company” or “limited company” or the abbreviation “L.L.C.,” “LLC,” “L.C.,” or “LC.”
- Be unique and distinguishable from every other business entity name on record with the Secretary of State. You can 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 Vermont 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 Vermont. For a $100 service fee, they’ll handle that paperwork so you don’t have to.