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 Virginia, you may need to complete a foreign qualification in Virginia before you can expand there.
What happens if I fail to foreign qualify before doing business in Virginia?
Foreign qualifying is essentially asking permission to do business in the Commonwealth of Virginia. 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 Virginia 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 Virginia courts
- Can be stopped from doing business in the Commonwealth by the attorney general
- Any LLC member, manager, or employee who participates in doing business with the knowledge that foreign qualification is required will be subject to a penalty of $500-$5,000
So, if your LLC conducts business without foreign qualifying, not only will you lose some legal rights and potentially your revenue stream, you and your colleagues will also be held personally liable. Foreign qualification isn’t the most exciting way to spend your time, but it’s well worth avoiding these penalties.
That said, conducting business without foreign qualification will not cancel any of your current contracts, nor will it prohibit you from defending a lawsuit in Virginia courts.
Interested in hearing straight from the source? Take a look at Virginia Code, Section 13.1-1057.
What is considered “doing business” in Virginia?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Virginia? Unfortunately, Virginia’s LLC Act doesn’t give a clear answer. However, tax laws tell us that you are considered to be “doing business” in most states and required to foreign qualify if:
- Your LLC has an established, continuous physical presence in the Commonwealth, like stores, offices, warehouses, etc.
- Employees, salespeople, or other representatives consistently operate on behalf of your LLC in the Commonwealth.
If you’re unsure whether or not you need to file for foreign qualification in Virginia, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Virginia?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Virginia. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining or settling actions or proceedings in Virginia courts
- Activities that concern internal affairs, like holding meetings of managers or members
- Having bank accounts
- Keeping offices or agencies for the management of the LLC’s own securities
- Selling through independent contractors
- Facilitating orders that require acceptance outside the state before they become contracts
- Creating or acquiring indebtedness, deeds, and security interests in real or personal property
- Collecting certain business debts
- Owning real or personal property
- Conducting one outlying transaction, completed within 30 days, which isn’t part of a series of similar transactions
Find a complete list of these exemptions in the Virginia Code, Section 13.1-1059. If you find all of your LLC’s activities in Virginia here, you’re likely not required to foreign qualify. Still, if you’re at all unsure, it’s best to check with an attorney.
How to Foreign Qualify your LLC in Virginia
Foreign qualification in Virginia 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 Virginia, you need to get your hands on a Form LLC-1052. There’s no option to submit this particular form online, so download it and fill it out with the following information:
- Your LLC name (and/or designated name, if your original name isn’t available in Virginia)
- The state where you originally formed your LLC
- The date you formed your LLC and period of duration
- Your principal office address
- Your Virginia registered agent’s name and address
- A signature from someone who has managing power in the LLC
Finished? Don’t mail it off yet! The State Corporation Commission also needs a Certificate of Existence (or Certificate of Good Standing) from your LLC’s home state. Plus, the application fee is $100, which you can pay via check (payable to “State Corporation Commission”).
Compile both of these items with your completed form and send them to:
Clerk of the State Corporation Commission
P.O. Box 1197
Richmond, Virginia 23218-1197
The SCC’s average processing time for foreign qualifications is 8-11 business days. But if you’re in a hurry, you can receive expedited service by submitting an “Expedited Service Request Form” and $100 for next-day service or $200 for same-day service.
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
Expanding to a new state is exciting, but in all that excitement, make sure to check over the little details, like confirming that your business name follows Virginia’s naming requirements. According to the LLC Act, your name must:
- Use the words “limited company” or “limited liability company” or their abbreviations “L.C.,” “LC,” “L.L.C.,” or “LLC.”
- Not use any terms that imply that it is a corporation or limited partnership
- Be available and distinguishable in the records of the State Corporation Commission’s records. You can check your name 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 Virginia 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 Virginia. For a $100 service fee, they’ll handle that paperwork so you don’t have to.