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 Texas and you are looking to open a second location in Washington, you may need to complete a foreign qualification in Washington 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, look into a reliable online service like Northwest Registered Agent.
What happens if I fail to foreign qualify before doing business in Washington?
Foreign qualifying is essentially asking permission to do business in the state of Washington. And the notion that “it’s easier to ask forgiveness than permission” doesn’t apply here. Failing to foreign qualify before doing business in Washington yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
- Will be disallowed from commencing or maintaining a lawsuit in Washington courts
- Can have its business activities halted by the Attorney General
- Will owe the state the total of all the fees it would have paid during its time doing business in the state, had it been properly registered
Mull over those penalties for a moment. The fees your business will retroactively owe, like the $180 Foreign Registration Statement and the $60 Annual Report fees, add up fast, especially if you’ve been doing business in Washington for multiple years. But on top of that, you could lose your revenue stream and legal footing as well. All things considered, it’s best to foreign qualify as soon as you begin doing business in the state.
Despite these penalties, if you’re caught doing business without proper registration, it won’t invalidate your existing contracts, and it won’t prevent you from defending a lawsuit in the state.
You can find the legal context for these penalties in RCW 23.95.505 of the Washington State Legislature.
What is considered “doing business” in Washington?
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Washington? The state’s LLC Act doesn’t specifically define this term, but its tax laws indicate that you are considered to be “doing business” in Washington and required to foreign qualify if:
- You have an established and continuous physical presence in the state, such as offices, stores, warehouses, etc.
- There are employees, salespeople, or other representatives doing business on behalf of your LLC in the state.
Also, depending on how you structure your LLC and what type of business you do, you may have to pay certain Washington business taxes. When you foreign qualify, it lets the state know that you’ll be paying these taxes. Otherwise, you could run into some heftier fines down the line. For more information on Washington business taxes, see the Department of Revenue website.
If you’re unsure whether or not you need to foreign qualify in Washington, we suggest seeking legal counsel.
Could I be exempt from foreign qualifying in Washington?
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in Washington. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
- Maintaining, defending, or settling a lawsuit in a Washington court
- Carrying on activities solely related to internal affairs, like meetings of members, managers, shareholders, etc.
- Having accounts at financial institutions
- Keeping offices for the management of the LLC’s securities
- Selling through independent contractors.
- Soliciting or obtaining orders that take place outside the state before becoming contracts
- Creating or acquiring indebtedness
- Collecting certain debts
- A single, isolated transaction, completed within 30 days, that is not in line with a series of similar business activities
- Owning, without more, property in Washington
- Transacting business in interstate commerce
Make a list of your business activities in Washington and then cross-check it with this one. If you find all of your activities here, you’re likely exempt from foreign qualifying. It might also help to check out the in-depth list in RCW 23.95.520. If you have questions, it would be wise to speak with an attorney.
How to Foreign Qualify your LLC in Washington
Foreign qualification in Washington 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 Washington, your task is to submit a “Foreign Entity Registration” either online or via paper form.
Despite which route you take, you will need to obtain and submit a Certificate of Existence (or Good Standing) from the state where you initially formed your LLC. This certificate cannot be more than 60 days old.
Time is important when registering your business in a new state, and filing online is typically the quicker process. On the S.O.S. foreign entity forms page, choose the “File Online” option next to “Foreign Entity Registration.” This will take you to the online filing portal, where you need to create an account to continue. After you’re signed in, continue with your Foreign Entity Registration by following the prompts. You can pay the $180 filing fee with a Visa, Mastercard, or American Express.
But if you’d prefer to leave a paper trail, download and print the “Foreign Entity Registration” form. The form itself contains step-by-step instructions for how to complete it. If you’re filling it out by hand, make sure to use dark ink. When finished, include a check (made out to “Secretary of State”) and mail your materials to:
Secretary of State
Corporations & Charities Division
PO Box 40234
Olympia, WA 98504-0234
In a hurry? You can fast-forward the standard processing time by requesting expedited filing on your paper or online form. This service costs an additional $50 and ensures that your registration is processed within two business days. All expedited mailing must have the word “EXPEDITE” written on the envelope.
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
Don’t forget that each state has its own rules for business entity names, and Washington is no exception. As you’re preparing your foreign qualification materials, check to confirm that your LLC name:
- Uses the “limited liability company,” the words “limited liability” and abbreviation “Co.,” or the abbreviation “L.L.C.” or “LLC”
- Does not use any of the following terms: “Cooperative,” “partnership,” “corporation,” “incorporated,” or the abbreviations “Corp.,” “Ltd.,” or “Inc.,” or “LP,” “L.P.,” “LLP,” “L.L.P.,” “LLLP,” “L.L.L.P,”
- Is distinguishable from all other business entity names registered or reserved in the Secretary of State records.
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 Washington 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 Washington. For a $100 service fee, they’ll handle that paperwork so you don’t have to.