What Is a Foreign LLC: Everything You Need To Know
A foreign LLC is a limited liability company that was created in one state and registers as a foreign entity to conduct business in a different state.3 min read
What is a foreign LLC? This business structure is a limited liability company that was created in one state and registers as a foreign entity to conduct business in a different state. On the other hand, a domestic LLC does business only in the state where it was formed. An LLC is a popular structure for small businesses because it combines the flexibility of a partnership with the personal liability protection of a corporation.
Do I Need To Register as a Foreign Entity?
It can be challenging for LLC owners (called members) to determine whether their activities in a state other than where the business was established constitute the need to register as a foreign entity in that state. When you do opt to register as a foreign LLC, you'll need to follow the guidelines established by the additional state in question. You should generally register as a foreign entity if any of the following applies:
- You have a physical location in the state.
- You have employees who work and/or live in the state.
- You own real estate or other property in the state, although this alone does not constitute doing business in certain states, including Florida.
- You have a bank account in that state.
- You meet with managers or investors in an official capacity in that state.
Although you may not want to take on the additional reporting requirements and fees associated with becoming a foreign entity, not registering when you are doing business in another state has dire consequences. You may be prevented from transferring title for real estate to your home state if you are not registered as a foreign entity where the property is located. You will be unable to sue for damages or breach of contract in that state unless you first register and then attempt to enforce these rights.
In this case, you may be required to pay back taxes, penalties, and fines for the time when you did business in that state but were not registered to do so. For example, California charges $20 per day in which business was transacted by a non-registered entity up to a maximum of $10,000. In Florida, penalties for illegally operating as a foreign entity are up to $1,000 per year. Texas and Arizona have no such penalties.
Because LLC laws vary by state, it's important to consult the regulations in the state in question. For example, some states, such as New Mexico, do not require foreign registration for transactions it considers "one-off." If you aren't sure, a qualified business attorney can help.
Should I Form Several Domestic LLCs?
If you are forming a new LLC and plan to primarily do business in a state other than your physical location, you can register in that state as a domestic entity. If you do this in multiple states, however, the businesses are considered separate. This can be advantageous because each entity has liability protection from the actions of the other entities. For example, if one LLC declares bankruptcy, the others will not be affected. Businesses that are foreign qualified in multiple states share liability no matter where business was transacted.
How Do I Register as a Foreign LLC?
The process of registering to do business in another state is called foreign qualification. However, it is usually similar to the process for registering a domestic LLC, which requires submission of a registration form signed by a member or manager to the secretary of state office, along with a required filing fee. The form itself is usually different for foreign entities, however.
You must also conduct a name search to make sure the name you want is not already registered in your new state. If a similar name is already taken by another business, you'll need to register a doing business as (DBA) name to use in that state. You'll also need a registered agent who has a physical address in the foreign state.
Registration requirements for foreign entities vary by state but are often higher than the fees for registering a domestic LLC. For example, Oregon currently charges $100 for domestic LLCs to register and $275 for foreign entities. Annual re-registration and filing fee is required in some states.
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