A Delaware LLC can do business in any U.S. state, as long as it completes a foreign qualification.
Business owners and entrepreneurs use Delaware limited liability companies to do business all over the world. Whether you’re in California or India, operating a Delaware LLC is easy. However, if you’re doing business outside Delaware with your LLC, there are key requirements to know.
To legally do business in a different U.S. state, a Delaware LLC has to:
- File a foreign qualification with the Secretary of State’s office
- Pay a state filing fee
- Get a Delaware Certificate of Good Standing, and
- Hire a registered agent in the state
In this article, we take you through what a foreign qualification is and how a Delaware LLC can qualify to do business in other states.
What Is a Foreign Qualification?
A foreign qualification legally allows a business entity, like an LLC or corporation, to operate outside its original state. For instance, if a candy store was initially set up as a Delaware LLC and now plans to expand into Florida, it needs to register the Delaware LLC as a foreign business entity in Florida.
A foreign qualification provides an LLC with the legal right to conduct business in a different state. Any business entity that is foreign to a particular state must file a foreign qualification to comply with local state laws.
How To Operate a Delaware LLC in Other States: Two Steps
Qualifying a Delaware LLC to do business in another state involves two crucial steps:
Step 1): Complete a Foreign Qualification Form
Qualifying your Delaware LLC in another state requires filing a form to that state’s Secretary of State’s office.
Different states use different names for these forms. For example, Florida refers to this form as a “Certificate of Authority to Transact Business”, while New York calls the same form an “Application for Authority.”
Other names for state foreign qualification forms include:
- Application for Registration of a Foreign Entity (TX)
- Foreign Registration Statement (DE)
- Statement and Designation by Foreign Corporation (CA)
- Statement of Foreign Qualification
Each state demands different details on their form. States might also request additional documents to finalize a foreign qualification. For instance, most states demand a Delaware Certificate of Good Standing.
A Delaware Certificate of Good Standing is a document issued by the Delaware Secretary of State. It verifies that a Delaware LLC has paid its franchise taxes and is compliant with state laws. Some states might also request a certified copy of the company’s Delaware Certificate of Formation.
A Delaware registered agent, like IncNow, can assist with getting a Certificate of Good Standing for Delaware LLCs or corporations.
Step 2): Appoint A Registered Agent
Most states require a foreign company, like a Delaware LLC, to appoint a registered agent located within the state. The role of a registered agent is to represent your company and forward specific legal documents, known as “service of process,” to you.
When Does a Delaware LLC Need a Foreign Qualification?
A Delaware LLC must complete a foreign qualification in a different state if it is deemed to be “doing business” in that state. Certain business activities are typically recognized by state laws as requiring a foreign qualification, including:
- Establishing a physical storefront
- Serving customers from different states
- Hiring employees
- Owning assets such as real estate
It’s best to complete a foreign qualification as soon as you realize your Delaware LLC will be doing business in a different state. Several states impose hefty fines for failing to register a foreign business entity after a certain timeframe.
How Much Does a Foreign Qualification Cost?
Filing a foreign qualification requires paying a state filing fee. Filing fees for foreign qualifications vary depending on the state where you are qualifying and the entity type (LLC or corporation). State registration fees for a foreign LLC or corporation can vary. They range from $0 to as high as $750.
Can A Non-Delaware Company Operate in Delaware?
Completing a foreign qualification in Delaware entails filing an application for a foreign qualification with the Delaware Secretary of State’s office. Delaware requires a foreign company to obtain a Certificate of Good Standing (also called a “Certificate of Existence”) from their home state. You will also need to hire a Delaware registered agent.
What Does a “Foreign Company” Mean?
A “foreign company” refers to a business entity, such as a limited liability company or corporation, that is operating outside of its home state. For instance, an LLC that was formed in Delaware but employs staff in California is a foreign company in California.
A foreign company needs to qualify to do business in any state that it operates in to avoid fines and penalties.
What If I Don’t Register My Delaware LLC in Different States?
Neglecting to register your Delaware LLC in other states where you do business can result in severe penalties and fines. The best approach for your Delaware LLC or corporation is to start the foreign qualification process as soon as you know that your company will be conducting business in a different state.
Understanding the details of the foreign qualification process is a vital aspect of managing a growing business. By knowing the rules, your Delaware LLC can conduct business in any state while steering clear of hefty penalties and high fees.