What is a Foreign Limited Liability Company (LLC)?
We typically think of “foreign” to mean that it came from a different country. However, when it comes to LLCs, that’s just not the case.
In business law, an LLC is called “domestic” in the state it first registered in. Because of that, it’s called a “foreign” LLC in any other state it does business in.
Why does this matter? Well, it matters because different states have different laws. Each state is subject to its own rules regarding how businesses can operate and have different rules when it comes to taxes, too.
It’s important to register as a foreign limited liability company when you do business in any state other than your home state. This helps you protect both your business and the LLC members.
When Do You Need To Register as a Foreign Limited Liability Company?
You need to register as a foreign LLC in any state you do business in. What does “doing business” actually mean, though?
The answer to that is a bit tricky, and depends on each state’s requirements.
For example, the Texas Secretary of State’s website states has a list of items that are NOT considered doing business in the state. These items include:
- Maintaining a bank account
- Conducting an isolated transaction that is completed in 30 days and is not repeated
- Owning real or personal property in the state
- Effecting a sale through independent contractors
- And more
When you form an LLC in Texas, there is no list of items that they consider “doing business”. Instead, Texas suggests that you speak with an attorney, read case law, or fill out the Texas Nexus Questionnaire to help you decide.
In their FAQ section, the state affirms that if a business “has an office or a location in Texas or is otherwise pursuing one of its purposes in Texas.” Clear as mud?
South Carolina has a similar list.
In general, you’re considered to be doing business in the state if you
- Hire employees in the state
- Have a physical location in the state
- Engage in contracts in the state
- Have regular meetings in the state
- Obtain significant revenue from the state
Check with your home state’s Secretary of State website to see if they outline exactly what “doing business” in that state means. If it’s not clear there, just check with an attorney.
How Do You Register a Foreign Limited Liability Company (LLC)?
It should come as no surprise that before you can register as a foreign LLC, you must register in your home state as a domestic LLC! We’ve talked about that in other blog posts, so be sure to check those out if you’re not sure where to start.
Once you’re established as a domestic LLC in your home state, you can begin the process of registering as a foreign LLC in the new state.
You can always enlist the help of an LLC formation company to help you streamline the process. If you prefer to do it yourself, check with your new state’s Secretary of State office.
They will have a form for you to complete, and it should be pretty painless as long as you have the documents from when you registered with your home state.
You’ll also need to find a registered agent in your new state. Make sure you’ve met any other requirements in your new state.
What Paperwork Do You Need To Register As a Foreign LLC?
Every state is different, so be sure to check with your state’s Secretary of State office to make sure you have all your ducks in a row. In general, though, here are a few things you might need:
- Check that your name is available – That’s right, someone might already be operating under your name in the state you plan to grow into! If that’s the case, you may need to make a change to your name, for that state only. Either way, be sure to check before you file your paperwork.
*Note: Some states also require that the name of an LLC include the words “Limited
Liability Company” or “LLC” at the end of the name. Make sure your name complies with
the rules in your new state.
- The date and state your company originally formed – Hopefully you have this information handy. If not, it might be available on the Secretary of State’s website in your home state or on your Certificate of Existence.
- Registered Agent – Remember that the registered agent must have a physical location in the state. If you’re using a company as your registered agent, check with them to see if they have an office in your new state. If you’ve been using yourself as your own registered agent, you’ll have to make other arrangements unless you have a physical location in the new state.
- Address of Records Office – This is the office where you keep the records for your company. These records include the names of the LLC members, their capital contributions, and other important business records.
- Office Address – The address of your office in the new state, if applicable.
- List of managers or managing members – Whether your LLC is managed by managers or the members, your new state needs to know this information.
- Articles of Organization – This document outlines how your company will be run, and your new state may want to have a copy on file.
- Certificate of Existence – This document proves that your company has been registered in your home state.
You’ll also need to complete the new state’s form, have it signed by a member and your new registered agent, and pay any fees required by the state.
What Happens If I Conduct Business Without Registering as a Foregin LLC?
Registering sounds like a lot of work, doesn’t it? It might be tempting to try to slip into a new state unnoticed. But if you do, you could find yourself in some serious hot water if you don’t register your foreign LLC.
First, there’s the issue of taxes. Whether it’s employment taxes, sales taxes, use taxes, or other types of taxes, when you do business in a new state you are subject to their taxes. And if you don’t pay taxes, you won’t just owe the taxes themselves.
You could also be slammed with penalties, late fees, and interest for the taxes you neglected to pay. The longer you wait to pay your taxes, the more late fees and penalties ratchet up. This is a problem you definitely want to avoid as a business owner.
The second issue involves contracts. In California, for example, if you aren’t registered with the Secretary of State, any contracts you enter into are automatically void.
There may also be legal problems, such as being unable to defend your business in court or bring suit when terms of your contracts are violated.
In short, this is a case where it is absolutely better to spend the time and register your business correctly even if it takes some time to form your LLC. It may take some extra time and money, but in the long run it’s the wisest choice for your business.
What Other Things Do You Need To Do When You Become a Foreign LLC?
Once you’ve registered as a foreign LLC, you may have a long list of additional things to do before you’re completely compliant with the laws. Here’s a list to get you started, but it’s always a good idea to check with the Secretary of State’s office with any questions you may have.
Register For Employer Tax Accounts
If you have employees in your new state, you’ll need accounts to pay employment taxes. These accounts include an Unemployment Insurance account and a State Withholding account.
Some areas may also have a local employment tax for the city or county your business is located in, so be sure to check that as well.
Register For Other Licenses
If you’re operating under a license in your home state, you will most likely need to get a similar license in your new state. This could include licenses for your business or your employees.
Register For Sales and Use Tax Accounts
If you’re selling or re-selling goods in the new state, you’ll probably need a Sales and Use Tax Account. If you’re not sure, check with the Sales Tax department.
File Annual Report
Most states require an annual or biannual report of your business. Usually, these are simple forms that don’t require a lot of information, but be sure you get the due date in your calendar so you aren’t late! If you don’t want to keep track of it, many LLC formation services will file these forms on your behalf.
A good rule of thumb when you’re thinking of additional requirements is to make a list of everything you do to comply with the laws in your home state. That list will give you a starting point as you consider everything you might need to do in your new state.
Final Thoughts on Foreign LLCs
If the best opportunity for your business growth is expanding to new markets, other states within the U.S. may be a great choice for you. Taking the time to file the correct forms now will save you major headaches and money down the road.
And if you do find yourself overwhelmed, an LLC formation service can help you register. They could also help you find a registered agent and keep you compliant with the Secretary of State laws in your new state.