Do you own a limited liability company (LLC) created in a state other than Texas, but you want to expand your business to the Lone Star State? If so, you’ll need to qualify your foreign LLC in order to transact business in Texas.
What is a foreign qualification and how do foreign LLCs function within the state of Texas? 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 Texas. 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 Texas 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. While Texas does not provide a precise definition of “doing business” in the state, it does provide a system for evaluating business activities to determine if they qualify.
What Qualifies as ‘Doing Business’ in Texas
There is no set definition of “doing business” in Texas, but the comptroller’s Texas Nexus Questionnaire (form AP-114) can be used to determine if a foreign entity is “doing business” for tax purposes. You can search for the form here. According to the Secretary of State: “The threshold level of activity required for a tax nexus is generally lower than the threshold level of activity that requires registration with the secretary of state. Therefore, if the Texas Nexus Questionnaire results in a determination of “no nexus,” the entity is probably not transacting business in Texas either. On the other hand, if the Texas Nexus Questionnaire results in a determination of “nexus,” the entity should consider registration. Remember that, for registration with the secretary of state, the Texas Nexus Questionnaire can be a useful tool, but does not give a definitive answer.”
What Does NOT Qualify as ‘Doing Business’ in Texas
Meanwhile, the following activities are not considered to be “doing business” in Texas, and you do not need to qualify a foreign LLC to pursue them:
How to Get Foreign Qualification in Texas
If you want to foreign qualify your LLC in Texas, you’ll need to file an Application for Registration of a Foreign Limited Liability Company with the Secretary of State’s office. This application will require the following information:
Filing Fee: $750, with the check made payable to the “Secretary of State.”
What Is the Penalty for Not Getting Foreign Qualification in Texas?
There are two major penalties for failing to qualify a foreign LLC in Texas. First, your business will not be able to file a lawsuit against a third party in a Texas court, though you can still defend against lawsuits. And second, your business will be liable for all fees that would have otherwise been paid during registration. The state of Texas adds additional fines for each year that your business has been operating without foreign qualification.
Should I Hire a Business Service Provider to File My Texas 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 Texas.
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 Texas isn’t particularly complicated compared to some other states. However, it is relatively expensive to file the paperwork, and you will need to obtain a Certificate of Existence from the state in which your business was formed, which can delay the process. Texas’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 Texas can be severe ― especially if someone you do business with doesn’t live up to their end of a contract and you are unable to sue them.
We hope this article managed to answer your questions about obtaining a Texas foreign qualification, and we wish you a prosperous business future!