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 where 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 California, you may need to complete a foreign qualification in California 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, many of the best LLC services can handle this task for you.
Foreign qualifying is essentially asking permission to do business in the state of California. 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 California yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
You can see how these fines add up quickly. In short, it’s simply not worth the risk. While the total fines you rack up would vary depending on the circumstances, it certainly won’t be cheap. A couple of years of $800 franchise taxes, along with late fees and other penalties makes the $70 foreign qualification fee look like nothing at all.
Plus, in California you can be held personally liable if acting on behalf of an unauthorized foreign business entity, potentially resulting in a misdemeanor or additional fines.
You can read more about possible penalties in the California Corporate Law Statutes.
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in California? State law doesn’t get into specifics, but does say that transacting business means “entering into repeated and successive transactions of business in this state, other than in interstate or foreign commerce.” Additionally, according to the California Franchise Tax Board, you are considered to be “doing business” and required to foreign qualify if:
They say nothing is certain except death and taxes. But in this case, we’re just talking about taxes. As mentioned above, every LLC operating in California must pay an $800 annual franchise tax. When you foreign qualify, it notifies the state that you will be paying this tax. Otherwise, you could be subject to additional fees and penalties. It’s important to always stay on top of your LLC’s taxation requirements to avoid any unwelcome surprises.
If you’re unsure whether or not you need to file for a foreign qualification in California, we suggest seeking legal counsel.
The foreign qualification, however, isn’t a hard and fast rule for all LLCs performing any kind of action in California. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
For a deeper dive into these exceptions, see Article 8 of the California Corporations Code. Scan the list, and if you find your LLC’s only business actions within California, you likely aren’t required to foreign qualify. But again, the penalties are steep, so if you’re unsure, it’s best to seek legal advice.
Foreign qualification in California 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 California, head straight to the Secretary of State Forms, Samples, and Fees webpage. There, under the Foreign LLC dropbox, you’ll find form LLC-5: Application to Register. The form itself has detailed instructions for its completion.
In addition to your complete LLC-5, California requires you to attach a Certificate of Good Standing from the state where your LLC originated. So, if you launched your LLC in Washington, you will need to request a certificate from the Washington state government. This means that you need to be up to date on all filings and taxes in that state.
The easiest and quickest way to foreign qualify your LLC in California is through the state’s online filing system. Simply click on “Registration – Out-of-State LLC,” and you’ll be on your way.
For postal mail, send your form to:
Secretary of State
Business Entities Filings Unit
P.O. Box 944228
Sacramento, CA 94244-2280
Or, if you live near Sacramento and want to get out for some fresh air, you can hand-deliver it to:
1500 11th Street, 3rd Floor
Sacramento, CA 95814
To file your application successfully, you’ll also need to pay a $70 fee. Acceptable payment methods include check or money order by mail and check, money order, or credit card in person. There is an additional $15 counter drop-off fee for in-person submissions.
By now you’re probably itching to get your business off the ground. If you want to know how long the process will take, the California Secretary of State website updates its processing times daily. You can find them here. But if you’re really in a hurry, they also offer three tiers of expedited processing for additional fees:
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 foreign qualified and you’re embarking on another chapter in the life of your business.
One final reminder: make sure that you review California’s business entity naming restrictions to ensure that you don’t run into any issues. Your LLC name must:
We think you should foreign qualify your LLC before you begin conducting business in a new state. If you don’t, your business could be subject to a broad range of fines and penalties for operating an LLC in a state where you don’t have permission to do so.
You’ll typically need to wait roughly three weeks for the state to process an online filing, and it takes 5-6 weeks for mailed or in-person filings. Take a look at California’s real-time processing estimates here.
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with California state law. For more information about business licenses and more in this state, check out California’s business licensing FAQ page.
The overall costs of operating a California LLC can vary considerably based on the specifics of your business. However, we created a helpful guide to help you identify and plan for every expense your LLC will face in this state.
The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.
Using an LLC service means your business will be foreign qualified by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.
Using an online California LLC service removes much of the hassle from the foreign qualification process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your California registered agent.
The service then registers your Application to Register with the state to qualify your LLC to do business in California.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
California Business Resources
Foreign Qualification by State
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