Foreign Qualification: when your LLC does business in a second state

An LLC belongs to the state where it was formed. That is where it is registered, where it has its Registered Agent and where it pays its fees. Every other state treats it as a foreign LLC, meaning a company from outside, even if it was formed just one state line away. If it wants to do business in a second state, it has to register there. Americans call this foreign qualification. This page explains when a state requires registration, what it costs in Delaware, Florida, California, New York, Texas and Wyoming, what happens if you skip it, and how to end a registration again.

1What foreign qualification means

In the US, company law is a matter for the individual states. Each state keeps its own register and initially only knows the companies formed under its own law. A company from another state is a foreign entity in its eyes. "Foreign" here does not mean from abroad: a Delaware LLC is just as "foreign" in Texas as a company from Europe.

The states use different names for the process. Delaware calls it registration, Florida and Wyoming a Certificate of Authority, New York an Application for Authority and Texas an Application for Registration (the Texas form used to be called Application for Certificate of Authority). The meaning is the same everywhere: the company registers in the second state, appoints a Registered Agent there to receive legal papers, and gets permission to do business there. It does not become a new company. It remains one single LLC with one state of formation and one Operating Agreement; the second state simply lists it in its register as well.

For an LLC with a real place of business in the US, which is what this website is about, this is a practical question. If you form in Delaware and open an office in Texas, hire staff in California from Florida, or run a store in New York, you will sooner or later need foreign qualification. How to set up the place of business itself is covered on our page Forming a US LLC with a place of business. If, on the other hand, you live outside the US and your business does not take place in the US, that is a different situation; that is what our sister site zerotax.llc is for.

2When a state requires registration

The obligation depends on whether the company does business in the state. Texas and Florida speak of "transacting business", Delaware of "doing business". No state gives an exhaustive definition. The Texas Secretary of State states explicitly that Texas law does not define the term, and offers a rule of thumb: a company generally does business in Texas if it has an office or an employee there or pursues one of its purposes there. Whether that applies in a given case is not something the agency decides; it refers you to legal counsel.

What the statutes do list precisely are activities that are not enough on their own. Delaware names these, among others, in 6 Del. C. § 18-912:

• bringing, defending or settling a lawsuit,
• holding meetings of members or managers and handling other internal affairs,
• maintaining bank accounts,
• selling through independent contractors,
• soliciting orders that are only accepted outside the state,
• making or taking out loans and collecting debts,
• a single transaction that is not part of a series of similar transactions,
• transactions in interstate commerce.

Florida has a similar list in § 605.0905, with two points that matter for business owners. A single transaction only falls outside the rule there if it is completed within 30 days. And owning land alone is not doing business, but owning real estate or personal property that generates income is. So if you hold a rented house in Florida through an LLC from another state, you have to register. Texas lists sixteen such exceptions in § 9,251 of its Business Organizations Code.

The lists help you rule things out, not in. An office with permanent staff, a warehouse, a store or a construction site running for months are not among the exceptions. If you are planning steps like these, plan on registering before the office opens.

3What registration costs in six states

State fees vary widely, and every registration brings ongoing obligations in the second state. The table shows the fee for registering an LLC from another state and what comes on top every year after that.

Three things stand out. California is the cheapest to register in, but according to the Franchise Tax Board it charges the annual tax of $800 to every LLC whose Form LLC-5 application the Secretary of State has accepted. New York requires a foreign LLC, too, to publish in two newspapers for six weeks within 120 days of filing, just like an LLC formed in New York; more on this on our page on the New York LLC and its publication requirement. And Delaware charges a foreign LLC registered there the same annual tax of $400 as a Delaware LLC.

Corporations have their own forms and fees. In Delaware, qualifying a corporation from another state costs $245; the company submits a certificate from its state of formation no more than six months old and a statement of its assets and liabilities. What a company costs each year in its state of formation is summarized on our page on the annual costs of a US company.

4What you risk without registering

The consequences follow a similar pattern across the states. First, the company loses a right: it cannot bring a lawsuit in the state where it does business unregistered until it registers and pays what it owes. For a business with customers there, this is the harshest consequence. If you want to sue over an unpaid invoice, you first have to catch up on the registration before the court will hear you.

Then there is money. Under 6 Del. C. § 18-907, Delaware imposes a penalty of $200 for each year or part of a year without registration. Under § 605.0904, Florida demands all fees and penalties that would have been due had the company qualified on time, plus 500 to 1,000 dollars for each year without authorization. Texas imposes a penalty equal to all fees and taxes that would have accrued since the first business activity and allows a grace period of 90 days: register after that and you pay a surcharge equal to the registration fee for each calendar year or part of one. At $750 per year, a lapse over several years gets expensive. On top of that, in Texas as in Delaware, the attorney general can obtain a court order barring the company from continuing to do business there.

Two things, however, remain unaffected. The company's contracts stay valid, and it can defend itself against a lawsuit. And the members and managers are not personally liable for the LLC's debts merely because the registration was missing. That is how Delaware puts it in § 18-907 and Florida in § 605.0904. So the limited liability that leads many people to form an LLC does not depend on foreign qualification. It depends on other things, such as separate accounts and proper records.

5How registration works

The process is similar in all six states, and it starts in the state of formation.

5.1Proof from the state of formation

Almost every state wants to see that the company exists and is in good order in its state of formation. For that, the state of formation issues a Certificate of Good Standing (in New York it is called a Certificate of Existence). The window is short: New York wants a document no more than one year old, Delaware (for corporations) one no more than six months old. If your LLC is not in good standing in its state of formation, say because an annual tax is unpaid, you won't get the certificate. Then you clean things up there first.

5.2A Registered Agent in the second state

Every application names a person or company with an address in the second state to accept service of process. Florida also requires the agent's written acceptance. New York designates the Secretary of State to receive service. What a Registered Agent does and what to look for when choosing one is covered on our page Registered Agent and business address.

5.3The application and the name

The application states the LLC's name, its state of formation, the addresses and, in Florida, at least one person authorized to manage the company. If the name is already taken in the second state, the LLC has to operate there under a different name. Texas requires the LLC to actually use that assumed name in its business dealings.

5.4Your obligations afterward

Registration starts your ongoing obligations in the second state. In Texas, a foreign LLC subject to franchise tax files its franchise tax report with the Comptroller every year, together with a Public Information Report listing the names of its managing persons. In Delaware, it pays the annual tax by June 1. In California, it pays the annual tax to the Franchise Tax Board. So from then on you have two calendars: one for the state of formation and one for the second state.

6Registration is not taxation

Whether a company has to register and whether it owes taxes in a state are two separate questions. Florida even writes this into law: the list of activities that don't count as doing business does not apply to the question of whether the state may tax the company. So a state can demand taxes even though no registration was required, and vice versa.

California shows this clearly. According to the Franchise Tax Board, an LLC is already "doing business" there if one of its members, managers or other agents acts for it in California, or if its sales, property or payroll in California exceed certain thresholds that are adjusted every year. From that point it owes the tax, whether or not it is registered with the Secretary of State.

The same holds for federal tax, only on a bigger scale. What the IRS requires depends on how your LLC is classified for tax purposes, not on where it is registered at state level. How the LLC is taxed in the US is explained on our page on taxation of the US LLC; which taxes a state levies when your company does business there is covered under state taxes.

7Form in the right state from the start

Foreign qualification isn't a mistake, it's a tool. It's the right route when a company is deliberately based in Delaware but operates in another state, for example because investors expect Delaware law or because a holding company runs several companies in different states. It's also the route when a business grows and expands into another state.

But if your LLC operates in just one state from day one, and that isn't the state of formation, you pay twice: two registries, two Registered Agents, two sets of fees and reports. In that case, forming in the state where the business actually happens is often the simpler route. Which state suits which venture is compared on our page Choosing the right state. The essentials for Delaware are on the page Forming a Delaware LLC, and for Texas on the page Forming a Texas LLC.

8When your LLC leaves a state

A registration doesn't end on its own when the office closes. As long as it exists, the obligations in the second state continue. So if you leave a state, you formally end the registration.

In Texas, a company that continues to exist and is only leaving Texas files a Certificate of Withdrawal on Form 608. This must include a Certificate of Account Status from the Comptroller confirming that Texas taxes are paid. If the company has ceased to exist in its state of formation, the Texas registration ends with proof from that state; Form 612 serves as the cover letter, and the fee is $15. A foreign LLC in Delaware files a Certificate of Cancellation, fee $200, and first pays the annual tax for the entire current year. If the company is dissolved altogether, closing out the registrations in the other states is part of the process; how dissolution works overall is explained on our page Dissolving a US LLC.

In short

• An LLC is only at home in its state of formation. If it does business in another state, it must register there as a foreign LLC.
• No state gives a complete definition of doing business. But the statutes do list activities that don't qualify, such as holding a bank account or selling through independent dealers.
• Across the six states, the state fee ranges from $70 in California to $750 in Texas, plus the ongoing obligations in the second state.
• Without registration, the LLC cannot bring a lawsuit itself in the second state, and it faces penalties and back payments. Its contracts remain valid.
• If your LLC only operates in another state, forming directly in that state is often the simpler route.

How we help you

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