Do you own a limited liability company (LLC) created in a state other than Delaware, but you want to expand your business to the The First State? If so, you’ll need to qualify your foreign LLC in order to transact business in Delaware.
What is a foreign qualification and how do foreign LLCs function within the state of Delaware? In this guide, we’ll answer these questions and more.
Guru Tip: If you’d rather hire an online service to handle this process for you, many of the best LLC services can handle it for you.
What Is a Foreign Qualification?
A foreign qualification enables your limited liability company to do business in the state of Delaware. It doesn’t matter which state you originally formed your business in ― or in other words, the state your domestic LLC is located in ― as the qualification process to register a foreign LLC in Delaware is the same regardless of where your domestic LLC is based.
The confusion surrounding foreign qualification usually centers on what it means to “do business” in a state outside of your primary state. This gets especially problematic considering some states don’t strictly define what it means to transact business in that state. However, it has adopted the Revised Model Act, which outlines activities that do NOT qualify.
What Qualifies as ‘Doing Business’ in Delaware
The Delaware Secretary of State does not give a definition of “doing business,” but it does provide some questions to help foreign entities determine if they need to apply for foreign qualification in the state. The following questions will help determine your status:
If the answer to one or more of these questions is “yes,” you may need to obtain foreign qualification in Delaware.
What Does NOT Qualify as ‘Doing Business’ in Delaware
The Revised Model Act provides an outline of certain activities that do not qualify as “doing business” in various states. The following activities are exempt:
Additionally, the state of Delaware has added the following provisions:
How to Get Foreign Qualification in Delaware
To obtain Foreign Qualification, you must file a Qualification Certificate of a Foreign Corporation. This form will require the following information:
Filing Fee: $245.
What Is the Penalty for Not Getting Foreign Qualification in Delaware?
There are several consequences for operating a foreign business without first acquiring foreign qualification in Delaware. The following penalties may apply:
Should I Hire a Business Service Provider to File My Delaware Foreign Qualification?
If you don’t want to handle your foreign qualification on your own, you have options. Some entrepreneurs choose to hire a lawyer to prepare and file their Certificate of Authority, which can be a good option if you’re concerned about getting the job done right. However, attorney’s fees can be quite expensive.
The other option is to hire a business service provider like Incfile or ZenBusiness to register your foreign LLC with the state of Delaware.
These companies can typically get your foreign qualification done for a fraction of the price of an attorney. This is our preferred route if you don’t want to go with the DIY option.
Getting Foreign Qualification in Delaware is not very stressful or time-consuming, though it is more expensive than most states. However, this is definitely not a process that should be taken lightly. The penalties can be severe for an unregistered business ― especially if you need to bring a lawsuit against a party for unpaid debts.
We hope this article managed to answer your questions about obtaining a Delaware foreign qualification, and we wish you a prosperous business future!