Qualifying to Do Business Outside Your State

If your limited liability company (LLC) or corporation operates in multiple states, you could have to comply with the bureaucratic requirements of each state where you do business—a process called "qualifying to do business" in a state. Whether or not you must qualify to do business in a state depends on a number of factors, discussed in this article.

For state-specific information on qualifying as a foreign business in another state, see our state guide to qualifying your company to do business in another state.

What Is a Foreign Business?

When you do business in a state, your company is considered either "domestic" or "foreign" to that state. If you formed your company in that state, then you're a "domestic entity." If you formed your company in another state, then you're a "foreign entity."

For example, suppose your LLC is organized in Georgia and you do business both in Georgia and Texas. In Georgia, your business would be considered a "domestic LLC" because that's where it's organized. However, in Texas, your business would be considered "foreign" because your company wasn't formed in Texas.

The are two main types of foreign businesses:

• foreign corporations, and
• foreign LLCs.

You can also have a foreign limited partnership, though foreign corporations and LLCs are more common.

When an LLC or a Corporation Must Qualify to Do Business in Another State

If you plan on doing business in a state other than where you organized your LLC or incorporated your corporation, you'll have to check out the rules of the state where you'll be providing your goods or services. Every state has its own variations on when a business must qualify as a foreign LLC or corporation.

While every state is slightly different, all states generally follow the same basic principle: If a company is engaged in intrastate business in a state, that company must qualify to do business in that state. If the company's operations or transactions in a state are merely incidental to a larger interstate business operation, they might not have to qualify.

Let's define the terms intrastate and interstate so we can better understand the difference between the two types of businesses:

• Intrastate business: Transactions or operations that happen within a single state.
• Interstate business: Transactions or operations that happen between multiple states.

For example, suppose Gray Matter LLC is organized in New Mexico and runs a candy shop out of Albuquerque. The business also sells specialty candies online to customers across the United States. Even though Gray Matter LLC sells to customers in California and Illinois, these sales would likely be considered incidental to the company's interstate online business operations. So, Breaking Sky probably wouldn't have to qualify to do business as a foreign LLC in California, Illinois, or other states. Though, again, it's a good idea to check each state's rules for when you need to register.

Intrastate LLCs and Corporations Must Qualify to Do Business

Generally, your LLC or corporation must qualify to do business in any state where it's engaged in intrastate business, meaning that at least part of your business is conducted entirely within that state's borders. For example, suppose your Nevada business has a warehouse in Oklahoma and you sell and ship from that warehouse to customers within Oklahoma. You'd be engaged in intrastate business in Oklahoma.

Typically, state foreign entities laws require you to register as a foreign business if you're "transacting business" or "doing business" in that state. But most states don't specifically define "transacting business" or "doing business" in relation to foreign registrations.

Many states require a foreign business to qualify as a foreign LLC or corporation if the business has a physical presence in—or nexus with—the state. Generally speaking, physical presence and nexus are synonymous, and mean having:

• a warehouse in the state
• a store in the state, or
• an office in the state.

Some exceptions can apply and not every state has the same laws or metric for determining when a company must qualify to do business. Nevertheless, in general, if you have a physical location in another state, you'll need to qualify your LLC or corporation as a foreign business in that state.

Exceptions to the Intrastate Rule

States exempt particular types of business from the definition of intrastate business. As discussed earlier, if your business takes part in intrastate business, you have to register with that state. But when states exempt an activity that would normally be considered intrastate business, you don't have to register with that state if your business engages in only the exempted intrastate activity.

Here are some examples of the types of business activities that out-of-state corporations and LLCs can potentially conduct without having to qualify as a foreign business:

• conducting mail order or telephone sales, if they're the only business activities the company engages in within a state
• operating a website, if the website is the only presence you have in other states
• running national (not local) advertising campaigns to customers in that state
• maintaining an office, agency, or trustees in a state to register, transfer, or exchange the company's securities
• selling goods through independent contractors in a state
• defending or settling a lawsuit within a state
• having a business bank account in a state
• securing or collecting debt within a state, and
• doing a single, isolated transaction in a state.

Some states—including Washington, North Carolina, Louisiana, Oregon, Kentucky, Nevada, and Michigan—exempt the activity of simply owning real or personal property in a state. In those states, if you own property but don't do anything with the property, you wouldn't have to qualify to do business in that state. But if you were leasing the property or producing income from it in some way, then you probably would have to qualify your business.

For example, suppose you have a business in California but you own a vacant building in Oregon with plans to eventually expand your business operations to Oregon. Currently, you don't do business in Oregon and haven't set up anything or done any activity out of or within the vacant building. Because you just own this vacant building in Oregon, you probably wouldn't have to qualify to do business in Oregon.

It's important to note that some states, like Louisiana, don't recognize selling through independent contractors as an exempt type of intrastate business. So, if you sell goods or services through independent contractors in these states, you'd likely have to qualify as a foreign business.

Interstate LLCs and Corporations Do Not Have to Qualify to Do Business

On the other hand, a state can't make you qualify or pay business taxes in that state if you only engage in interstate business with other states—meaning that all of your business is conducted across state lines. For example, if you sell and ship merchandise from your home state to residents in other states, you're engaged in interstate business, which generally can't be regulated by other states.

How to Qualify to Do Business in Another State as a Corporation or LLC

Qualification is simply a registration process that involves filing paperwork and paying fees—similar to the procedures required for incorporating your corporation or organizing your LLC. The form you file with the state will usually be called a "foreign registration statement," a "certificate of authority," or something similar.

Generally, the form will ask you to provide the following information:

• the name of your business
• the alternate name your business will use when doing business in that state (if necessary)
• the date your company started doing business in that state
• the name, address, and contact information of the person filing the form
• the state where your company was formed (organized or incorporated)
• the date your company was formed
• the street address of your company's principal place of business
• the name of a manager, director, or officer in your company, and
• the name and mailing address of a registered agent (someone in the state that can accept legal papers on behalf of your company).

A person authorized to sign on behalf of your business will need to sign the form. You might also need to make other certifications about your business within the form. Qualification fees can range from $50 to $500 or more depending on the state.

Once you're registered in a state, you must report and pay state income and sales taxes, as well as file state employment tax filings if you have sufficient payroll, property, and sales in the state.

Let's look at the forms you'll need to file and the fees you'll pay (as of 2023) for some states.

Consequences for Not Registering Your Foreign Business

If you do business in a state without authorization, there could be consequences.

Fines. You could be subject to financial penalties, sometimes known as "late-qualification penalties." Some states have one flat fine while other states impose daily or monthly fines. Under California law, for example, there's a late-qualification penalty of $250 plus $20 per day for willful (knowing, not inadvertent) failure to qualify. (Cal. Corp. Code § 2203 (2023).)

Not allowed to file lawsuits. Most states prevent companies that haven't qualified in that state from starting a lawsuit in that state's courts. Under these laws (known as "door-closing statutes"), a court will delay or dismiss your lawsuit if the defendant objects because you didn't qualify your business in the state.

Play It Safe—Qualify Your Foreign LLC or Corporation

You should review the rules in the states where your business is engaged in any intrastate business. If you think that your activities might be considered intrastate business in some states, it's best to qualify to do business in those states. Better to deal with the inconvenience and modest filing fees ahead of time rather than face penalties and court delays if the state determines that you should have qualified, but didn't.

If you want an extra opinion or legal advice, consider talking to a business attorney who's licensed in the state where you want to do business. A lawyer can help you decide whether your business operations qualify as a non-exempt intrastate activity that requires registration. A lawyer can also file the appropriate forms for you and help you maintain your foreign registration.