Do you own a limited liability company (LLC) created in a state other than Arizona, but you want to expand your business to the The Grand Canyon State? If so, you’ll need to qualify your foreign LLC in order to transact business in Arizona.
What is a foreign qualification and how do foreign LLCs function within the state of Arizona? 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 Arizona. 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 Arizona 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. Arizona state law does not provide a clear definition of “doing” or “transacting” business, however you can see if you qualify as a foreign business by examining Arizona tax laws.
What Qualifies as ‘Doing Business’ in Arizona
A business established outside of Arizona that wants to do business in the state is considered a foreign entity by Arizona state law. Any foreign business will need to register with the state before conducting business. According to Arizona state tax law, any commercial entity that has a physical location within the state is considering to be “doing business” in Arizona.
What Does NOT Qualify as ‘Doing Business’ in Arizona
Like many other states, Arizona has adopted the Revised Model Act of 1984 provision. This act identifies certain activities that do not qualify as “doing business.” The following activities do not necessitate foreign qualification in the state of Arizona:
Additionally, Arizona added a 12th provision, stating that “being a limited partner of a limited partnership or a member of a limited liability company” is also excluded from foreign qualification requirements.
How to Get Foreign Qualification in Arizona
If you want to qualify as a foreign LLC in Arizona, you must file the Application for Authority to Transact Business or Conduct Affairs in Arizona with the Arizona Corporation Commission. The information required in this form includes:
Filing Fee: $175, with the check made payable to the “Arizona Corporation Commission - Corporate Filings Section.”
What Is the Penalty for Not Getting Foreign Qualification in Arizona?
A foreign business that attempts to do business without obtaining foreign qualification will be subjected to several major penalties. First, Arizona state law forbids unregistered foreign businesses from bringing a lawsuit against another individual or entity, though another individual entity can still bring a lawsuit against your unregistered business. Additionally, any unregistered LLC forfeits its ability to choose a statutory/registered agent, and elects the Arizona Corporation Commission as the registered agent by default. This could result in missed deadlines and an inability to be present in court to defend against lawsuits.
Should I Hire a Business Service Provider to File My Arizona 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 Arizona.
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 Arizona is pretty simple, and does not require excessive paperwork or fees like in some other states. In addition, Arizona’s regulations regarding which LLCs need to foreign qualify are generally lax. Still, this isn’t a process that should be taken lightly, because the penalties for not qualifying a foreign LLC in Arizona can be severe ― especially if a third party wants to bring a lawsuit against your business and you are not served with the terms of the lawsuit in a timely manner.
We hope this article managed to answer your questions about obtaining an Arizona foreign qualification, and we wish you a prosperous business future!