In order for an out of state business to do business in the state of Iowa, they need to qualify or register the business in the state. In the following article our Iowa business attorneys cover the general rules of how to qualify an out of state (foreign) limited liability company to do business within the state of Iowa.
In this article, we discuss important aspects of Iowa foreign businesses including:
- What is a foreign business?
- What is transacting business in Iowa?
- What activities are exempt from the rules on foreign LLC registration in Iowa?
- What is a certificate of authority?
- What are the consequences of not registering in Iowa?
What is a foreign business?
In Iowa, if your LLC is formed in another state, it is considered a foreign LLC. This means that it has been created under the laws of another state. In contrast, a business formed in Iowa is considered a domestic business in Iowa.
What is transacting business in Iowa?
Pursuant to Iowa’s LLC Act, Iowa Code Chapter 489, a foreign LLC is required to register in Iowa if they are transacting business within the state. The term “transacting business” is murky and isn’t defined in the statute.
Iowa law does, however, govern when foreign LLC’s have to collect sales tax, which offers some guidance. Under Iowa law, a business must have a physical presence or nexus in the Iowa in order to be required to collect sales tax from residents. Generally, this means the LLC must have:
- A warehouse in Iowa
- A store in Iowa
- An office in Iowa
- A sales representative in Iowa.
There are some exceptions to this general rule and complications, specifically with the growth of online sales. Generally speaking, if you have a location or sales rep in Iowa, you will need to register as a foreign company in the state of Iowa.
What activities are exempt from the rules on foreign LLC registration in Iowa?
Iowa’s LLC Act states that certain activities explicitly do not count as transacting business in Iowa. These activities include:
- Dealing with internal LLC affairs (such as business meetings);
- Having a bank account within the state;
- Selling through independent contractors;
- Defending or settling lawsuits;
- Having an office, agency or people in the state handling the LLC’s securities;
- Selling through independent contractors;
- Securing or collecting debts;
- Creating interests in property;
- Conducting an isolated transaction that is completed within 30 days;
- Obtaining orders that will be completed outside of the state.
Additionally, the Act states that owning income producing property in Iowa doesn’t constitute transacting business within the state. Should your LLC be conducting one of these activities, it will not need to be registered in Iowa.
What is a certificate of authority?
To register a business in the state of Iowa, you need to file an application for a certificate of authority with the Iowa Secretary of State. A copy of this document can be found on the Iowa Secretary of State’s website and it can be filled out through an online portal.
The information requested is very similar to the information required to register an LLC. In Iowa, the following information is required for the registration of a certificate of authority:
- Name of the LLC (as it is in the home state’s registration);
- Any additional names you would like to use when conducting business in Iowa;
- The state where the LLC was formed;
- The duration of the LLC;
- The name and information of the registered agent and office in Iowa;
- A statement that the agent and office comply with Iowa Code;
- A statement regarding the LLC being a series LLC, if applicable;
- If you have a series LLC, a statement regarding debts, liabilities, and obligations related to the particular series being registered;
- An authorized signature.
Additionally, you must include a certificate of existence or an equivalent document with your application. This should be issued by the state you are registered in. The certificate must be dated no earlier than 90 days prior to when you file your application. The filing fee to register is $100.
What are the consequences of not registering in Iowa?
The penalties for not registering your foreign LLC in Iowa can be very harsh. If your LLC does business in Iowa without authority, it can’t bring a lawsuit in the state. Additionally, you could face a civil penalty of up to $1,000 and can face being barred from continuing to conduct business in Iowa by the attorney general. It’s worth noting that you don’t need to be registered to defend a lawsuit, rather to bring a lawsuit. Finally, should you conduct business without registration, that does not relieve you from any debts or obligations you have made in Iowa.
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