How to Get Foreign Qualification in Delaware

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.

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:

• Does your company have a physical address in the state?
• Does your company accept orders in the state?
• Are you paying employees in the state?
• Does your company hold any assets in the state?
• Have you opened a business bank account in the state?

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:

• Maintaining, defending or settling any proceeding
• Holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs
• Maintaining bank accounts
• Maintaining offices or agencies for the transfer, exchange and registration of the corporation's own securities, or maintaining trustees or depositories with respect to those securities
• Selling through independent contractors
• Creating or acquiring debt, mortgages and security interests in real or personal property
• Securing or collecting debts or enforcing mortgages and security interests in property securing the debts
• Owning, without more, real or personal property
• Transacting business in interstate commerce
• Conducting an isolated transaction that is:
  • completed within 30 days; and
  • not one in the course of repeated transactions of a like nature

Additionally, the state of Delaware has added the following provisions:

• A mail order or similar business accepting orders outside the state and shipping goods into the state
• A business that employs salesmen who operate within the state, while all other operations take place outside the state
• The sale of machinery by contract outside the state

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:

• Name of your LLC
• State of formation
• Nature of the business
• Main office and mailing addresses
• Name, address, and contact information of the registered agent
• Assets and liabilities
• Filing party’s signature

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:

• A fine of no less than $200 and no more than $500 per year
• An unregistered foreign entity cannot maintain any action or proceeding in a Delaware court

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.

Conclusion

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!