SBInformer:
When considering whether to form a corporation or a limited liability company (LLC), don’t be confused by the term foreign qualification. Most of us, when we hear ‘foreign,’ think of something outside the United States; however, in the world of U.S. corporations and LLCs, the word foreign has a different meaning.
Foreign qualifying a company means that you are registering it to transact business in a state other than your state of formation. Corporations and LLCs are considered domestic only in their state of formation. For example, if you formed your LLC in Delaware, it is only domestic in the state of Delaware. If your LLC is transacting business outside the state of Delaware, it would be considered a foreign LLC in those other states.
When you foreign qualify a business, you register for a certificate of authority in the state or states where your company will be transacting business, and pay the necessary state fees. By doing this, the state knows that a foreign corporation or LLC is conducting business within its borders.
When evaluating whether to form your business as a corporation or LLC in a state other than one where you are transacting business, keep in mind that your business will be subject to ongoing reporting requirements, fees and taxes in both your state of formation and state of qualification. If your business is expanding into new states and you need to qualify it as part of this growth, these initial and ongoing fees should be considered a necessary part of doing business.
What is Considered Transacting Business?
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