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Many small business owners and entrepreneurs may have heard about LLCs (Limited Liability Companies) in their various forms. One term that is common in the business world is “foreign LLC” or “foreign qualify.” Although it may sound like a business that operates in another country, it isn’t. Rather, it’s a company that operates in a state other than the state in which it was originally formed.
Why Would I Need a Foreign LLC?
Let’s say you started an LLC in California. But business is booming, and you’d like to expand your operations to, say, Texas. In Texas, your company would be considered a foreign LLC. But in California, it would continue to operate as a domestic LLC.
But the conditions in which a business needs to register as a foreign LLC aren’t always clear. For example, what if you’re an online retailer and simply make a sale in another state? What if you hire an independent contractor for remote work who lives in another state? What if you conduct most of your business locally but host meetings in another state?
Applying for Foreign Qualification
Under law, you are required to register as a foreign LLC if your company has a “significant presence” in another state. But what does “significant presence” mean? The following conditions typically apply:
- You have employees working in the state, especially if you’re paying payroll taxes in that state
- You have a physical location in the state, such as an office or retail store that you own or lease
- You sell products or provide services in the state and a significant percentage of your revenue derives from that state
- You hold frequent in-person meetings with staff or clients in that state
- You have obtained a business license in another state
The following conditions typically DO NOT require you to register as a foreign LLC:
- Conducting an online business with minimal physical interaction
- Engaging in occasional transactions with customers in another state
- Operating a freelance business with no physical location
However, it should be noted that each state has its own set of rules governing what does and doesn’t qualify as a foreign LLC so it’s important to check with the state in question.
How Do I Register as Foreign LLC?
The process for registering a foreign LLC varies from state to state, but in general, the following steps should be taken:
- Apply for a Certificate of Authority: Typically, you must apply to the Secretary of State’s office, but some states have dedicated divisions for business registrations. The application will include details about your company’s name, type of business, and original state of formation.
- Pay the Registration Fees: The fees vary from state to state but range from $50 to $750 (most are in the $100–$200 range).
- Appoint a Registered Agent: Similar to registering an LLC in your home state, you’ll need a registered agent in the state in which you are registering a foreign LLC. The registered agent must have an address in the state in which you are applying and is responsible for receiving documents relating to your business.
- Provide a Certificate of Good Standing: Some states require businesses to submit documentation certifying you are properly registered in your home state, are up-to-date on all fees and taxes, and are legally permitted to operate.
In addition, you’ll have to complete the standard procedures for operating a business in each state in which you apply, such as applying for sales and use tax permits, employer taxes, special use taxes (if required), and seller’s permits, among others.
What are the Benefits of Registering as a Foreign LLC?
Not only is registering as a foreign LLC required to operate legally, it helps you avoid fines and penalties. In addition, it provides you with the legal right to enforce contracts, file lawsuits, or engage in other legal disputes if need be. It also protects your name by preventing other companies in that state from using it.
Protect Your Business with a Foreign LLC
If your company has grown to the extent that you are expanding to another state, congratulations! Before you move ahead, it’s important to understand the ins and outs of registering as a foreign LLC. Doing so not only ensures you are complying with local laws, it protects your business.
While the process may involve some paperwork and fees, it ultimately safeguards your company’s operations. If you’re unsure whether you need to register as a foreign LLC in another state, consulting with a professional can provide clarity and help you navigate the many rules and regulations that govern the process.
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