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 Colorado, you may need to complete a foreign qualification in Colorado 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 Colorado. 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 Colorado yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
Let’s add up those penalties. Say you’ve been doing business in Colorado for four years. Your civil penalty could be $5,000. Then, add $100 for each of the four years, $100 for your Foreign Entity Authority Statement, $10 for each of two Periodic Reports, and $100 for a Statement Curing Delinquency. Your total comes to (drum roll please): $5,620. And that’s not even considering the retroactive taxes you’d have to pay and the fact that the attorney general could cut off your current transactions, costing you profits. It’s simply not something you want to risk.
However, while you wouldn’t be able to bring a lawsuit to court if caught operating without authority, you would still be allowed to defend a suit in Colorado.
Need more info? Take a look at the Colorado Corporations and Associations Act 7-90-802.
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Colorado? The state’s Corporations and Associations Act uses both “transacting business” and “conducting affairs” in reference to business activities, but doesn’t provide specifics. However, in most states, you are considered to be “doing business” and required to foreign qualify if:
If you’re unsure whether or not you need to file for a foreign qualification in Colorado, 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 Colorado. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
If you find your only business activities in Colorado on this list, you’re likely off the hook and don’t have to foreign qualify. But keep in mind that this list, while thorough, isn’t exhaustive. So if you’re at all unsure whether you need to foreign qualify, we recommend seeking legal counsel.
For additional information, read over the Colorado Corporations and Associations Act 7-90-801.
Foreign qualification in Colorado 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 Colorado, go to the Secretary of State’s Business Forms List and find the “Statement of Foreign Entity Authority,” in the Foreign Entities section. There is no paper form available, so you’ll need to do so online by clicking the “file online” link. For the most efficient filing process, make sure you’ve gathered the following info before you begin:
Need a more detailed walkthrough? The Secretary of State has you covered. See here for detailed instructions.
The last step in the process is paying the form’s $100 fee. Enter your credit or debit card information on the last page of the online form. Before you hit submit, make sure that you’ve entered all information correctly, as mistakes could result in fines or legal consequences.
Since you’re filing online, your form will be processed immediately.
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.
Your LLC name is an important part of the registration process. It’s how your company will be known in Colorado. That said, don’t forget about the state’s naming restrictions.
Your LLC name must contain a signifier that designates it as a Limited Liability Company. Acceptable signifiers are:
More importantly, your name must be distinguishable from all other business entities on record with the Colorado Secretary of State. Before you do anything else, perform a Colorado LLC name search to make sure the name you want is available.
You can also reserve your Colorado business name if you’re not quite ready to foreign qualify your LLC.
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.
Colorado’s online-only filing system is one of the nation’s most efficient. Many foreign qualifications are processed immediately, and at most, you should only have to wait a couple of business days.
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Colorado state law. For more information about business licenses and more in this state, check out the Colorado Department of Regulatory Agencies, which can help with professional and occupational licensing. We will note that Colorado has no general business license, and much of the licensing and permitting in this state is done at the county and municipal levels.
The overall costs of operating a Colorado 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 Colorado 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 Colorado registered agent.
The service then registers your Statement of Foreign Entity Authority with the state to qualify your LLC to do business in Colorado.
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.
Colorado Business Resources
Foreign Qualification by State
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