On average, small businesses in the US generate between $1 million and $41.5 million in annual revenue; the amount you make in particular will depend on which industry you’re in and how wisely you’ve set up your business operations.
Regardless, it’s almost always a good idea to expand your horizons. With a wider potential audience, you’ll have a better chance of increasing your income. So if you were wondering, “Can my LLC operate in another state,” the answer is “Yes!”
Before you start doing business in other states though, you’ll have to learn about foreign qualification, as it’ll enable you to do so legally. Here’s a thorough guide to ensure you have all the information needed.
What Is Foreign Qualification?
Foreign qualification is a process where you register your company as a “foreign” entity in a state other than the one where it was initially formed. The name is misleading since it sounds like you’ll have international operations; however, in reality, it only gives you the right to operate in a different American state.
Why Would You Need Foreign Qualification?
This may come as a surprise, but you can’t just start your company in one state and then freely conduct business in others. If you’ve been doing so, you may have been breaking the law.
Essentially, getting foreign qualification means that you’ve gotten proper permission from an outside state to conduct business there. The state would then make sure that you don’t have an unfair advantage over its domestic businesses, which it should prioritize. It also gathers basic information from you so that the public can access it.
Who Needs Foreign Qualification?
As you might’ve already guessed, any organization that’s doing business in a state other than where incorporated will need foreign qualification. However, the terms of “doing business” may be hazy for some.
In general, if your business will have a physical presence in the state, as well as employees, then you’ll probably need to foreign qualify. Also, if you plan on receiving orders in that state, and/or need to collect sales tax, then you’ll probably need foreign qualification as well.
Typically, if you’re doing a one-off transaction (which usually lasts under 30 days), you won’t have to take this extra step. If you’re forming a partnership, opening/maintaining a bank account, or are a wholesaler, then this may not apply to you either.
Do keep in mind that foreign qualification requirements by state are different, so you’ll need to comply with the specific regulations of the state where you want to do business.
What Happens When You Foreign Qualify?
Admittedly, it’s not an entirely pleasant process to get foreign qualification. Once you have, you’ll have to pay fees, including long-term ones.
In addition, you’ll have more reporting obligations. Not only do you have extra work in your home state, but in the qualification state too.
What Happens if You Don’t Get Foreign Qualification?
It’s understandable if you don’t want to deal with the hassle of additional fees and work. However, there are very real consequences if you don’t follow the law.
For one, should a client, partner, or vendor breach any contracts, you won’t have the right to sue them in court. You may get lucky in some states where the judge will allow you to foreign qualify before proceeding, but you don’t want to count on that.
On top of that, if you’re found to be operating illegally, you’ll have tons of backpay on your hands, as well as fines, penalties, and even back taxes. Depending on where you’re located and which state you’re trying to do business in, your officers and agents can be held responsible too.
The Process of Foreign Qualification
Now that you’re clear on what foreign qualification is, you may be wondering how to get it for your company. Do note that the fees and processing times will vary based on your circumstances; however, expect to pay around $200 ($100 if you’re a nonprofit organization) and to wait for five or more weeks (this can be shortened to one or two weeks if you take the expedited options).
Here are the steps you have to take.
Perform a Name Check
Performing a name check is something you should’ve already done when you created your business. If you actually haven’t done so yet, then consider having Business Anywhere form your LLC. With our business registration service, you’ll be set up with little time and money spent.
Now, even though your company already exists, you’ll still need to perform a name check when foreign qualifying by looking at the records of the Secretary of State. This is because there may already be a business with that name elsewhere, and you don’t want to repeat it.
If you find that there’s already a company with your name in the state you wish to operate it, then you can pick a fictitious name to use there (not to be confused with an assumed or DBA name). Otherwise, reserve it to ensure that no one else creates a business in that state with the same name.
Name Your Registered Agent
You should already have a registered agent if you have a business up and running. But again, this only applies to the state where you formed your company.
Regarding foreign qualification, you’ll need a registered agent in every state you get it. So for example, if you’re foreign qualified in three other states other than your home one, then you’ll need four registered agents total. We at Business Anywhere offer registered agent services as well, meaning we can take care of multiple aspects of your LLC.
Order Your Certificate of Good Standing
Next, you’ll have to order your company’s certificate of good standing from your home state. This certificate is also called the certificate of status or certificate of existence. This piece of paper proves that you’re compliant with things like filing annual reports and paying taxes, so you haven’t been doing so, you’ll have to play catch-up to get your certificate.
Do note that some states require other documents or verification processes, such as Montanna and Colorado. This means it’s vital that you do your due diligence to find out exactly what you need to proceed.
Apply for Your Certificate of Authority
When forming an LLC, you’ll have to file your articles of organization. Applying for your certificate of authority is very similar.
Every state will have different requirements, but in general, you’ll need to put down your:
- Company name
- Business address
- Principal address
- Business start date and state
- Registered agent’s information (full name and address)
- Members’ information (names and addresses)
- Management type
An authorized LLC member should sign the application and send it off.
Get Foreign Qualification for Your Company
If you’re thinking about doing business outside of your home state, then foreign qualification is a must. Failure to foreign qualify when required can result in fines and penalties, which can cause major problems in your business operations.
So make sure to check the specific rules of each state to ensure compliance with their regulations. Also, consult with professionals to ensure that you navigate this process efficiently and painlessly.