Do you own a limited liability company (LLC) created in a state other than Michigan, but you want to expand your business to the Great Lake State? If so, you’ll need to qualify your foreign LLC in order to transact business in Michigan.
What is a foreign qualification and how do foreign LLCs function within the state of Michigan? 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 Michigan. 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 Michigan 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. Michigan state law does not define exactly what is meant by “doing business in the state.”
What Qualifies as ‘Doing Business’ in Michigan
Though there is no definition for “doing business” in Michigan, generally you will need to form a foreign LLC in Michigan if your business pursues any of the following activities in this state:
What Does NOT Qualify as ‘Doing Business’ in Michigan
Meanwhile, the state of Michigan has adopted provisions of the Revised Model Act, which outlines certain activities that do not qualify as “doing business.” You do not need to qualify a foreign LLC to pursue the following activities:
How to Get Foreign Qualification in Michigan
If you want to foreign qualify your LLC in Michigan, you’ll need to file an Application for Certificate of Authority to Transact Business in Michigan with the Department of Licensing and Regulatory Affairs. Per the department’s website, this form requires the following information:
Filing Fee: $50, with the check made payable to the “State of Michigan.”
What Is the Penalty for Not Getting Foreign Qualification in Michigan?
There are two major penalties for failing to qualify a foreign LLC in Michigan. First, your business will be unable to bring lawsuits in a Michigan court. And second, your business (as well as individual members and managers who participated in transacting business in Michigan) will be liable for penalties up to $10,000. Both of these penalties would be devastating for foreign entities, especially for a small business whose members could be liable for individual penalty fees.
Should I Hire a Business Service Provider to File My Michigan 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 Michigan.
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.
The process for getting foreign qualification in the state of Michigan isn’t particularly complicated. It is also less expensive to process the paperwork than most other states. In addition, Michigan’s rules and regulations regarding which LLCs need to foreign qualify are considerably looser than many states. Still, this isn’t a process that should be overlooked or taken lightly, because the penalties for not qualifying a foreign LLC in Michigan can be severe in some cases ― especially if participating members of your LLC are liable for $10,000 penalty fees.
We hope this article managed to answer your questions about obtaining a Michigan foreign qualification, and we wish you a prosperous business future!