Do you own a limited liability company (LLC) created in a state other than Kentucky, but you want to expand your business to the Bluegrass State? If so, you’ll need to qualify your foreign LLC in order to transact business in Kentucky.
What is a foreign qualification and how do foreign LLCs function within the state of Kentucky? 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 Kentucky. 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 Kentucky 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, Kentucky state law does define exactly what does and does not qualify as “doing business in the state”.
What Qualifies as ‘Doing Business’ in Kentucky
In general, you’ll need to form a foreign LLC in Kentucky if your business pursues any of the following activities in this state:
What Does NOT Qualify as ‘Doing Business’ in Kentucky
Meanwhile, the following activities are not considered to be “doing business” in Kentucky, and you do not need to qualify a foreign LLC to pursue them:
It’s important to note that Kentucky actually specifically excludes some business acts that do count as transacting business in some states ― like holding meetings and maintaining bank accounts ― which makes Kentucky’s laws in this manner more lax than many other states.
How to Get Foreign Qualification in Kentucky
If you want to foreign qualify your LLC in Kentucky, you’ll need to file a Certificate of Authority for a Foreign Business Entity. This is a relatively simple one-page form that you submit to the Secretary of State. The information required in the Certificate of Authority includes:
Filing Fee: $90, with the check written to the “Kentucky State Treasurer.”
What Is the Penalty for Not Getting Foreign Qualification in Kentucky?
There are two major penalties for failing to qualify a foreign LLC in Kentucky. First, the business would be responsible for a $2 financial penalty for each day it does business in Kentucky without filing the Certificate of Authority, which is insignificant on the surface, but could add up over time. Potentially much more damaging is the second penalty, which is that your business will not be allowed to maintain a proceeding in the Kentucky court system without a Certificate of Authority. This means that individuals and businesses could fail to honor contracts with your business, and you wouldn’t be able to do anything about it legally.
Should I Hire a Business Service Provider to File My Kentucky 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 Kentucky.
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 a foreign qualification in the state of Kentucky isn’t particularly complicated compared to some other states. In addition, Kentucky’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 Kentucky 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 a Kentucky foreign qualification, and we wish you a prosperous business future!