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 Massachusetts and you are looking to open a second location in Delaware, you may need to complete a foreign qualification in Delaware 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 Delaware. 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 Delaware yields consequences that are far costlier than registering in the first place. If you fail to foreign qualify, your business:
While these penalties are detrimental to your business operations, they do not ban your LLC from all activities in the state. Penalties for operating without foreign qualifying will not affect the validity of your current contracts, nor will they prevent you from defending an action or suit in Delaware court.
Find a more in-depth description of these penalties in the Delware LLC Act, Sec. 18-907.
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Delaware? Read over the state’s LLC Act and you’ll find very few specific examples, but it does state that “doing business” means “the course or practice of carrying on any business activities in the State of Delaware, including, without limiting the generality of the foregoing, the solicitation of business or orders in the State of Delaware.” But in most states, you are considered to be “doing business” and required to foreign qualify if:
Something else to keep in mind is Delaware’s Franchise Tax. All LLCs operating in the state must pay an annual $300 tax for the privilege of doing business there. Foreign qualifying notifies the Secretary of State that you will be paying. If you don’t, you will likely be liable to owe this tax, plus late fees, later on. 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 Delaware, 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 Delaware. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
See anything your LLC does? Is that its only business action in Delaware? Then you’re probably in the clear and won’t have to foreign qualify. For a full list of exemptions, see the Delaware LLC Act, Sec. 18-912. If you have any doubt or question about whether or not you need to foreign qualify, it’s best to seek legal advice.
Foreign qualification in Delaware 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 Delaware, you’ll need to complete and submit a “Certificate of Registration of Foreign LLC Company.” The form’s first and second pages contain in-depth instructions for its completion. To make the process as quick as possible, have the following information on hand before you sit down with your form:
You’re not quite finished yet. Along with this completed form, you’ll need to submit:
Once you’ve gathered your documents, you’re ready to submit! Mail everything listed above to:
Delaware Division of Corporations
401 Federal Street – Suite 4
Dover, DE 19901
Or fax them to (302) 739-3812
Processing times at the Delaware Secretary of State’s office are usually 2-3 weeks, although we will note that they recently changed the phrasing on their website to make the section about turnaround times much vaguer. Today, it basically says, “we’ll process them in the order we receive them,” and that’s about it. That said, if you’re itching to start doing business, they also offer multiple expedited processing options at various costs.
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 on its way to being foreign qualified and you’re embarking on another chapter in the life of your business.
Between gathering documents, paying fees, and keeping up with all your other business owner responsibilities, it can be easy to forget about naming requirements. As a reminder, in Delaware, your LLC name must:
You can also reserve your Delaware 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 jurisdiction where you don’t have permission to do so.
You’ll typically need to wait roughly 2-3 weeks for most Delaware foreign qualifications, although the state recently revised its website to be much less clear about turnaround times. If time is of the essence, you can use one of the state’s four options for expedited service.
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Delaware state law. For more information about business licenses and more in this state, check out the state’s Business License FAQ page.
No. Delaware does not require annual reports for LLCs, whether foreign or domestic. That said, as we mentioned earlier, you’ll need to pay your franchise tax each year to remain compliant with state law.
The overall costs of operating a Delaware 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 Delaware 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 Delaware registered agent.
The service then registers your Certificate of Registration with the state to qualify your LLC to do business in Delaware.
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.
Delaware Business Resources
Foreign Qualification by State
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