If you’ve decided to expand your business beyond its current state lines, the prospect of reaching new markets and larger customer bases can be very exciting. However, there are certain steps you must follow and requirements you must meet to remain compliant throughout your expansion. In order to do business in a new state, you’ll need to first file as a foreign LLC in that state.
While each state has its own legal variations regarding how to form and maintain a foreign LLC, there are some common elements that apply across the board.
Contrary to how it may sound, a foreign LLC refers not to a business from outside the country, but simply a company expanding from one state to another. Forming a foreign LLC enables your company to do business in additional states beyond the state of your original formation.
There are several situations that can require you to file as a foreign LLC in a particular state or states. They include:
If you partake in any of the above business activities in a state other than the one where you formed your limited liability company, you should file as a foreign LLC in that state.
As mentioned earlier, each state has their own twist on the formation process for foreign LLCs. Still, there are some aspects that apply across the board in just about every state. To start, no matter where you want to form your foreign LLC, you will need to register your company in your primary state first. In most locations, forming a foreign LLC will also require either a certified copy of your original Articles of Organization, and/or a Certificate of Good Standing.
From there, the main step in obtaining a foreign qualification for your limited liability company is registering for a Certificate of Authority in the state you wish to conduct business in and paying the required fee. It’s common for states to charge a larger fee for foreign LLCs than domestic ones. Once you obtain this document you will be able to conduct your business activities in this state.
In most cases, you’ll also need a recent (usually within six months) Certificate of Good Standing from your state of formation, along with some basic information:
If you choose to conduct business in a state where you have not formally registered as a foreign LLC you can face a number of penalties. First, your business may be subject to fines and fees, which can total in the thousands of dollars, far more than the cost to register your LLC in that state.
In most states, if you are an unregistered foreign company conducting business, the government may conclude that any contracts your business signs can be voided by the other party. Even in states where this is not the case (such as New Mexico), your LLC will most likely be barred from filing any lawsuits to protect its interests. This leaves your business vulnerable to being taken advantage of in a number of ways.
Finally, operating an LLC in a state where you are not qualified to do so may void your personal asset protection. This means that if your company is sued, creditors may gain access to your house, your car, your personal checking account, and other personal property. This is potentially ruinous for you both personally and professionally.
If you would rather hand off your foreign LLC filing to a respected professional business services provider instead of doing it yourself, there are plenty of companies that can help. There are quite a few good options when it comes to hiring out the acquisition of your foreign qualification:
Whether you want to handle your foreign LLC qualification on your own or hire a service is a matter of budget, time, and personal preference.
Any time you pursue business activities in a state other than the one where you formed your limited liability company, it’s important to determine if you need to acquire a foreign qualification.
It’s a relatively simple and inexpensive process when compared to the steep penalties you may incur by being found noncompliant.