How to get Foreign Qualification in North Carolina (2022)

Do you own a limited liability company (LLC) created in a state other than North Carolina, but you want to expand your business to the Tar Heel State? If so, you’ll need to qualify your foreign LLC in order to transact business in North Carolina.

What is a foreign qualification and how do foreign LLCs function within the state of North Carolina? In this guide, we’ll answer these questions and more.

What Is a Foreign Qualification?

A foreign qualification enables your limited liability company to do business in the state of North Carolina. 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 North Carolina 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, North Carolina state law does outline what is meant by “doing business” in the state.

What Qualifies as ‘Doing Business’ in North Carolina

According to North Carolina state law: “1) For income tax purposes, the term ‘doing business’ means the operation of any business enterprise or activity in North Carolina for economic gain, including, but not limited to, the following:

• The maintenance of an office or other place of business in North Carolina;
• The maintenance in North Carolina of an inventory of merchandise or material for sale, distribution or manufacture, regardless of whether kept on the premises of the taxpayer or in a public or rented warehouse;
• The selling or distributing of merchandise to customers in North Carolina directly from a company-owned or operated vehicle when title to the merchandise is transferred from the seller or distributor to the customer at the time of the sale or distribution;
• The rendering of a service to clients or customers in North Carolina by agents or employees of a foreign corporation;
• The owning, renting, or operating of business or income-producing property in North Carolina including, but not limited to, the following:
  • Realty;
  • Tangible personal property;
  • Trademarks, trade names, franchise rights, computer programs, copyrights, patented processes, licenses.

2) Corporations who are partners in a partnership or joint venture operating in North Carolina are considered to be ‘doing business.’ 3) ‘Doing business’ by an interstate motor carrier is defined as the performance of any of the following business activities in North Carolina:

• The maintenance of an office in the State;
• The operation of a terminal or other place of business in the State;
• Having an employee working out of the office or terminal of another company;
• Dropping off or gathering up shipments in the State.”

What Does NOT Qualify as ‘Doing Business’ in North Carolina

Meanwhile, according to North Carolina state law, the following activities are not considered to be “doing business” in the state, and you do not need to qualify a foreign LLC to pursue them:

• “Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or disputes.
• Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs.
• Maintaining bank accounts or borrowing money in this State, with or without security, even if such borrowings are repeated and continuous transactions.
• Maintaining offices or agencies for the transfer, exchange, and registration of its securities, or appointing and maintaining trustees or depositaries with relation to its securities.
• Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where such orders require acceptance without this State before becoming binding contracts.
• Making or investing in loans with or without security including servicing of mortgages or deeds of trust through independent agencies within the State, the conducting of foreclosure proceedings and sale, the acquiring of property at foreclosure sale and the management and rental of such property for a reasonable time while liquidating its investment, provided no office or agency therefor is maintained in this State.
• Taking security for or collecting debts due to it or enforcing any rights in property securing the same.
• Transacting business in interstate commerce.
• Conducting an isolated transaction completed within a period of six months and not in the course of a number of repeated transactions of like nature.
• Selling through independent contractors.
• Owning, without more, real or personal property.”

How to Get Foreign Qualification in North Carolina

If you want to foreign qualify your LLC in North Carolina, you’ll need to file an Application for Certificate of Authority with the North Carolina Secretary of State. The information required in the Certificate of Authority includes:

• Business name
• State of formation
• Period of duration
• Address of principal office
• Registered agent information
• Names and addresses of LLC officers
• Certificate of Existence (must be obtained from the state of business formation)
• Professional licensing (if applicable)

Filing Fee: $250, with the check made payable to the “Secretary of State.”

What Is the Penalty for Not Getting Foreign Qualification in North Carolina?

There are two major penalties for failing to qualify a foreign LLC in North Carolina. First, your business will not be able to file a lawsuit against a third party in a North Carolina court. And second, your business will be liable for certain fees, taxes, and penalties. This includes (but is not limited to) a fine of $10 for every day that your business operated in the state without a Certificate of Authority, up to a maximum of $1,000 per year.

Should I Hire a Business Service Provider to File My North Carolina 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 North Carolina.

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.

Conclusion

The process for getting foreign qualification in the state of North Carolina isn’t particularly complicated compared to some other states. However, you will need to obtain a Certificate of Existence from your business’ state of formation, and the rules and fees for this process can vary by state. In any case, this isn’t a process that businesses can afford to ignore, because the penalties for not qualifying a foreign LLC in North Carolina can be severe ― especially if you have been transacting business in the state for a long time and need to pay stiff penalties.

We hope this article managed to answer your questions about obtaining a North Carolina foreign qualification, and we wish you a prosperous business future!