As a Phoenix startup attorney, I frequently see companies that operate (or at least have an office) here in Arizona but (for a variety of reasons) initially formed as a limited liability company (LLC) in another state, such as Delaware or Nevada.
I often have to explain to the founders of these companies that simply having an LLC formed in one State does not automatically mean that it can conduct business in the other 49. This misconception can be a costly one.
Foreign vs. Domestic LLCs in Arizona
Here in Arizona at least, every foreign LLC or corporation (i.e., one formed outside of Arizona–not necessarily in another country) that transacts business in Arizona has to have a certificate of registration to transact business in the state. This process is known as “qualifying” or registering to do business in Arizona.
Is your company “Transacting Businesss” in Arizona?
The Arizona Limited Liability Company Act (Arizona Revised Statutes, Title 29, Chapter 4) specifically requires a foreign LLC to obtain a certificate of registration “before transacting business” in Arizona (A.R.S. §29-802(A). While The Act does not tell us exactly what “transacting business” is, the language of A.R.S. §29-809(E) does at least tells us what it isn’t:
E. […] a foreign limited liability company is not considered to be transacting business in this state for the purposes of this chapter solely because it is carrying on one or more of the following activities in this state:
1. Maintaining, defending or effecting a settlement of an action or suit or an administrative or arbitrative proceeding or effecting the settlement of a claim or dispute.
2. Holding meetings of its members or carrying on any other activities concerning its internal affairs.
3. Maintaining a bank account.
4. Maintaining an office or agency for the transfer, exchange and registration of its securities or appointing and maintaining trustees or depositories with relation to its securities.
5. Effecting sales through an independent contractor.
6. Soliciting or receiving orders outside this state in pursuance of letters, circulars, catalogs or other forms of advertising or solicitation and accepting the orders outside this state and filling them with goods shipped into this state.
7. Creating as borrower or lender or acquiring indebtedness, mortgages or other security interests in real or personal property.
8. Securing or collecting debts or enforcing any right in property securing the debts.
9. Transacting business in interstate commerce.
10. Conducting an isolated transaction completed within a period of thirty days and not in the course of a number of repeated transactions of a similar nature.
The bottom line is, unless you are absolutely certain your foreign LLC falls into one or more of the above exceptions, it is safest to assume that if your business has any type of presence in Arizona you are “transacting business” here and need to be qualified.
The dangers of not registering your foreign LLC to do business in Arizona
What could happen if your company is not qualified to do business in Arizona? A.R.S. §29-809 says that your foreign LLC will not be allowed to bring any “action, suit, or proceeding” in an Arizona court unless it has a certificate of registration. This could be a very big deal if you need to bring a lawsuit against a customer, vendor, or competitor.
Moreover, under A.R.S. §29-810 the Arizona Attorney General is authorized to bring an action to stop an unregistered, foreign LLC from carrying on its business in Arizona—an outcome which could be disruptive to your operations at best, and very expensive to your company at worst.
Fortunately, registering your foreign LLC or corporation in Arizona is ordinarily not difficult. Our Arizona Corporation Commission (ACC) has made it fairly straightforward, although, it could be made simpler by allowing foreign companies to do this online (I’ve been told they’re working on this).
How to qualify your foreign LLC to do business in Arizona
To obtain the necessary certificate of registration to qualify your foreign company to transact business, you will need to complete and file an Application for Registration of Foreign Limited Liability Company, together with the requisite cover sheet with the ACC. A copy of this application and cover sheet can be downloaded in .PDF format from the ACC website.
You will also have to include a certificate of good standing from your foreign LLC’s state of formation along with your application. The good standing certificate must be less than 60 days old to be acceptable.
You will also need to download and complete the required statutory agent acceptance and and either manager or member structure supplements and file them along with the Application with the filing fee of $150 (add an extra $35 for “expedited” processing).
Ben Bhandhusavee is the founder of BHANDLAW, PLLC, a Phoenix business and technology law firm representing early stage and established businesses on corporate merger and acquisition, technology, and finance transactions, as well as e-commerce, creative intellectual property, Internet and digital media matters. Ben can be reached at (602) 222-5542 or by e-mail at firstname.lastname@example.org