I frequently see startups who’ve organized as limited liability companies that operate (or at least have an office) here in Arizona but (for a various of reasons) opted to initially form in another state, such as Delaware or Nevada. Many of these LLC owners or partners don’t realize that having formed in one state does not automatically mean that it can conduct business any old way in the other 49— including Arizona. This misconception can be a costly one.
“Foreign” vs. Domestic LLCs in Arizona
The Arizona Limited Liability Company Act (Arizona Revised Statutes, Title 29, Chapter 7) (the “Act”) specifically requires a foreign LLC to obtain a certificate of registration “before transacting business” in Arizona (A.R.S. 29-3902(A)) [formerly §29-802(A)]).
In other words, here in Arizona anyway, every foreign (i.e., one formed outside of Arizona–not necessarily in another country) LLC or corporation that transacts business in the State 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.
What is “Transacting Business” in Arizona?
While the Act unfortunately does not tell us exactly what “transacting business” is, it does at least tells us what it isn’t. Specifically, the new language of A.R.S. §29-3905(A) (formerly §29-809(E)) says:
A. Activities of a foreign limited liability company or foreign series that do not constitute doing business in tis state under this article include any of the following:
Maintaining, defending, mediating, arbitrating or settling an action or proceeding.
Carrying on any activity concerning its internal affairs, including holding meetings of its members or managers.
Maintaining accounts in financial institutions.
Maintaining offices or agencies for the transfer, exchange and registration of securities of the foreign company or foreign series or maintaining trustees or depositories with respect to those securities.
Selling through independent contractors.
Soliciting or obtaining orders by any means if the orders require acceptance outside this state before they become contracts.
Creating or acquiring indebtedness, mortgages or security interests in property.
Securing or collecting debts or enforcing mortgages or security interests in property securing the debts and holding, protecting or maintaining property.
Conducting an isolated transaction that is not in the course of similar transactions.
Owning, without more, property.
Doing business in interstate commerce.
The bottom line? 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 that you are “transacting business” here and need to be qualified pronto.
What could happen if you don’t register your foreign LLC in Arizona
What could happen if your company is not qualified to do business in Arizona?
Similarly with the situation of foreign corporations, A.R.S. §29-3902(B) says that your foreign LLC doing business in the State will not be allowed to bring any “action or proceeding” in Arizona unless it is first registered to do business here.
This could be a very big deal if your company needs to bring a lawsuit against a customer, vendor, or competitor, as well as defend itself against such lawsuits or claims in an Arizona court.
Moreover, under A.R.S. §29-3912 (formerly §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 company’s operations at best, and very expensive at worst.
Fortunately, registering your foreign LLC or corporation in Arizona is ordinarily not difficult. The 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 here
To obtain the necessary certificate of registration to qualify your foreign LLC here in Arizona, 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. Note: 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 and the filing fee of $150 (add an extra $35 for “expedited” processing).
Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a startup, technology, and e-commerce law practice advising founders and management teams on company startup, corporate and technology transactions, e-commerce, as well as Internet privacy concerns. The firm serves corporate and individual clients throughout Arizona, the United States, and internationally. Our offices are conveniently located along the Camelback corridor in Phoenix’s financial district. For more information about our Company Startup practice, feel free to reach out using the contact form on the right or call us at (602) 222-5542 to schedule a meeting. Connect with Ben on LinkedIn or Avvo.