Do you want to expand an existing LLC into Texas with a foreign qualification, but you’re not familiar with the process?
This guide will outline important details when expanding your business and explain how to foreign qualify an LLC in Texas.
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 Oklahoma and you are looking to open a second location in Texas, you may need to complete a foreign qualification in Texas 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 Texas. 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 Texas 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. If you don’t foreign qualify, your business will be charged a minimum of $1,500 for the first year you fail to foreign qualify, plus $750 for each additional year, plus the taxes you would have been paying since starting your business in Texas.
Say you started doing business in Texas on June 1, 2019, but didn’t foreign qualify until December 1, 2022. You would owe $3,000 in late fees plus the original $750 fee, for a grand total of $3,750. And that’s not even considering the retroactive taxes you’d have to pay and the fact that the attorney general could completely cut off your business transactions. It’s not something you want to risk.
You can read more about possible penalties on the Texas Secretary of State’s website.
We’ve established why you shouldn’t do business without a foreign qualification. But what exactly does it mean to “do business” in Texas? You are considered to be “doing business” in Texas and required to foreign qualify if:
Another important consideration is state tax. Remember that any income made within the state of Texas is also subject to the state’s franchise tax. Foreign qualifying your business lets the state know that you might be filing taxes on money earned while doing business there. 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 Texas, 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 Texas. Certain actions do not qualify as “doing business” and therefore don’t require a foreign qualification. Some examples are:
For a full list of exemptions, see section 9.251 of the Texas Business Organization Code. If your only business actions in Texas appear on this list, you are exempt from filing a foreign qualification.
Foreign qualification in Texas 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 Texas, you can do so by filing Form 304 with the Texas Secretary of State. The fastest way to file is online through the Texas SOSDirect website.
You can also download and print the form online to file by mail to P.O. Box 13697, Austin, TX 78711-3697 or by fax to (512) 463-5709.
If you’re located in or near Austin, you can file in person at James Earl Rudder Office Building, 1019 Brazos, Austin, TX 78701.
There is a $750 application fee to foreign qualify an LLC in Texas, along with any late fees that may be applicable. You can use the Texas Secretary of State’s late fee calculator to assess your amount based on the date you started doing business within the state.
You can pay your fees by personal check, money order, LegalEase debit card, or any major credit card. Checks and money orders must be made out to the Texas Secretary of State. There’s an additional 2.7% convenience fee if you pay with a card.
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.
Like other states, Texas also has business entity name requirements. When foreign qualifying your LLC in Texas, you must register under a name that:
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 five to seven business days for the state of Texas to process your foreign LLC filing, according to the Secretary of State’s website.
Chances are, you’ll require at least one license or permit to operate your LLC in compliance with Texas state law. For more information, we recommend visiting the Texas Economic Development Division’s Business Permit Office.
Yes. Just like if you operate a domestic LLC in this state, you are required to file a Texas LLC Franchise Tax Public Information Report for a foreign LLC operating here.
The overall costs of operating a Texas 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 registered agent.
The service then registers your Certificate of Authority (or similarly named document) with the state to qualify your LLC to do business there.
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.
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