If you have an LLC or are considering forming your business into a limited liability company and you do business out of state, you probably will have to qualify as a “foreign” company before any money changes hands. We don’t mean “foreign” as in a company located in another country. In this case it simply means you are doing business in a state other than the one in which your LLC was originally formed LegalZoom vs Incfile.
It’s a common requirement, but one you cannot ignore unless you enjoy paying heavy fines and penalties if you don’t bother with this key requirement. In some cases, a business can also be liable to pay back taxes on the time they were doing business without qualification.
Another downside of not qualifying out of state is that the court systems in that state will not recognize your company should a legal problem develop. Your company has no legal standing in the state and you could lose a court case simply because you are not a registered entity.
Every state’s LLC laws differ slightly, which means you have to meet different requirements depending upon which state you are filing in. What does “doing business” mean? Typically it means you have a satellite office set up in another state, have a bank account in another state, or accept orders for its products or services in another state. Every state varies slightly, so you must investigate each state’s qualifications.
Why do states make this such an important aspect of doing business within their boundaries? Of course, much of it has to do with revenue. When you qualify as a foreign LLC, you’re responsible for paying fees and taxes in each state you do business in. Despite this additional cost, most experts agree it is far better to pay the fees and taxes than leave yourself and your company open to the kinds of penalties and consequences of not filing. Chalk these expenses up as part of the cost of being successful.