Do you own a limited liability company (LLC) created in a state other than Alabama, but you want to expand your business to the The Heart of Dixie? If so, you’ll need to qualify your foreign LLC in order to transact business in Alabama.
What is a foreign qualification and how do foreign LLCs function within the state of Alabama? In this guide, we’ll answer these questions and more.
Rocket 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 Alabama. 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 Alabama 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. Alabama state law does not provide a clear definition of “doing business,” though it does outline certain practices that do not qualify.
What Qualifies as ‘Doing Business’ in Alabama
Any business formed outside of Alabama that wishes to do business in the state is considered a foreign entity, and therefore needs to obtain a Certificate of Authority. According to Alabama state law, ‘doing business’ is defined as follows:[To] establish or maintain in this state a place of business, branch office or agency for the conduct of business.”
However, it is also noted that out-of-state fiduciary and trust companies are excluded from requiring a certificate of authority by this definition.
What Does NOT Qualify as ‘Doing Business’ in Alabama
Meanwhile, the following activities are not considered to be “doing business” in Alabama, and you do not need to qualify a foreign LLC to pursue them:
How to Get Foreign Qualification in Alabama
If you want to foreign qualify your LLC in Alabama, you’ll need to reserve the name of your company online via the Alabama Secretary of State’s website. After that, you must file a Foreign Corporation Application for Registration form. This is a relatively simple form that you submit to the Secretary of State. The information required in the Foreign Corporation Application includes:
Filing Fee: $150, with the check written to the “Alabama Secretary of State.”
What Is the Penalty for Not Getting Foreign Qualification in Alabama?
There is one major penalty for failing to qualify a foreign LLC in Alabama. Without this qualification, no foreign business can maintain a proceeding in the Alabama court system. Therefore, by default, any agreements or contracts made before obtaining foreign qualification would be rendered void. This means that individuals and businesses could fail to honor contracts with your business, and legally, you wouldn’t be able to do anything about it.
Should I Hire a Business Service Provider to File My Alabama 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 Alabama.
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 a foreign qualification in the state of Alabama isn’t particularly complicated compared to some other states. In addition, Alabama’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 Alabama can be severe in some cases ― especially if someone you do business with doesn’t live up to their end of a contract and you’re unable to sue them.
We hope this article managed to answer your questions about obtaining an Alabama foreign qualification, and we wish you a prosperous business future!