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 South Carolina and you are looking to open a second location in North Carolina, you may need to complete a foreign qualification in North Carolina 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 North Carolina. 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 North Carolina 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 unauthorized business in North Carolina for three years. That’s $3,000 right off the bat ($1,000 per year). Then, add the cost of an Application for Authority ($250) and three annual reports ($200 each). That comes to a grand total of – drum roll please – $3,850. And this isn’t even including taxes and potential late fees, which could make that total much higher.
This won’t, however, cancel or invalidate any of your current contracts or prevent you from defending a lawsuit.
If you’re interested in the law behind these penalties, read the North Carolina Revised Statutes, Section 57D-7-02.
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in North Carolina? State law is vague on the subject, which can lead to some confusion. But according to other state and tax laws, you are considered to be “doing business” in most states and required to foreign qualify if:
LLCs with certain structures are required to pay a franchise tax each year in North Carolina. But the state won’t know to tax you unless you’ve foreign qualified. If you’re thinking “it’d be easier to skip qualification and avoid the tax,” don’t be tempted! This will likely lead to heftier fines in the future. For more on the franchise tax, see the North Carolina Department of Revenue website. 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 North Carolina, 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 North Carolina. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
While this list is fairly comprehensive, you can find a bit more detail in North Carolina statutes, Section 57D-7-01. If your only business activities in North Carolina appear on the list, you’re most likely exempt from foreign qualifying. Still, it’s a good idea to speak with an attorney if you’re unsure.
Foreign qualification in North Carolina 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 North Carolina, the Secretary of State’s website has a helpful page containing all the information you’ll need. Feel free to browse or look for any particular information you might need. But when you’re ready to begin the filing process, click “Get Started” under “Preparing and submitting the documents.” Then, select “Submitting the document for filing.”
There are three options for submission: online, by mail, and in person. Click the one you prefer to get instructions. For all three, you’ll need to complete Form L-09: Application for Certificate of Authority for an LLC, so do that first. Then:
No matter how you file, the state requires you to include a Certificate of Good Standing – not more than six months old – from the state where you formed your LLC. Reach out to your home state’s government to obtain one.
The typical processing time is 5-7 business days. But if you’re itching to do business in North Carolina and you need it sooner, you can pay $100 for 24-hour service or $200 for same-day service.
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 foreign qualification, and you’re embarking on another chapter in the life of your business.
Before you send off your documents, double-check to confirm that your LLC name follows all of North Carolina’s business name requirements. To comply, your name must:
You can also reserve your North Carolina 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 5-7 business days. But if you’re itching to do business in North Carolina and you need it sooner, you can pay $100 for 24-hour service or $200 for same-day service.
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with North Carolina state law. For more information about business licenses and more in this state, check out the state’s brief, yet effective, Licenses and Permits webpage.
Yes. Whether you operate a domestic or foreign LLC in this state, you are required to file a North Carolina LLC Annual Report.
The overall costs of operating a North Carolina 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 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 North Carolina registered agent.
The service then registers your Application for Certificate of Authority with the state to qualify your LLC to do business in North Carolina.
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.
North Carolina Business Resources
Foreign Qualification by State
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