Ready to expand your business to different states but don't know how? Many LLC owners in such a situation register a Foreign Limited Liability Company. So, whether you want to open a franchise or move your LLC to another state, Foreign LLC is the solution.
Now you start wondering, “What is a foreign LLC” or “How to register a foreign LLC in any state.” Well, you don't have to worry; this Foreign LLC guide has covered every aspect of Foreign LLC formation. So let's get started.
What is a Foreign LLC?
A foreign limited liability company is a term used for an LLC doing business in a state other than the home state where the LLC has submitted its Articles of Organization.
The term “foreign” simply means the company is U.S. based but registered in a different state. That is why foreign LLC is also called out-of-state LLC in many states.
For instance, you have initially set up an LLC in Arizona. Fortunately, your business is doing well, and you want to expand it to another state, or maybe for any reason, you want to move your LLC to any other state, say California. In that case, you need to set up a foreign LLC in California while keeping your Arizona LLC.
Domestic vs. Foreign LLC | What is the Difference?
If you have registered an LLC in one state and also operate your business in that state, your LLC will be called a domestic LLC. Generally, when we talk about LLC, we refer to domestic LLC. For example, you have formed an LLC in Virginia and also transact your business in Virginia; your Virginia LLC will be a domestic LLC.
On the other hand, after creating an LLC in one state, you are operating your business in other states as well; you will register your LLC as a foreign LLC in all those states where you are transacting business. So, for instance, after forming an LLC in North Carolina, you are also conducting business in Michigan, you will register a foreign LLC in Michigan.
Why Do You Need to Set Up a Foreign LLC?
You're a business owner and have already formed an LLC in your home state. Then why set up a foreign LLC in another state to operate your LLC there? What are the benefits of having a foreign LLC?
Well, each state has its own rules, and to conduct business in a specific jurisdiction, you are bound to comply with the state law. The state authorities require LLCs that were not initially formed in those states to register as foreign LLCs to:
When Should You Register as a Foreign LLC?
Doing business in another state doesn't necessarily mean you have to register an LLC or corporation there. Many companies operate as unincorporated businesses, such as sole proprietorship or general partnerships, which do not require state registration.
Let's suppose you have started your online business that deals in kitchen items as Ohio LLC. Though the maximum of your sales come from Florida, you probably don't need to register your LLC in Florida. You see, getting your sales from a specific state isn't a criterion to register a foreign LLC.
However, if you want to reduce your shipping charges from Ohio to Florida and plan to open a warehouse in Florida, state laws come into play here. You probably will need to set up a foreign LLC there.
Generally, it is hard to say what types of business activities qualify your business to register as a foreign entity. Moreover, each state has its own rules, so we can not draw a hard and fast rule here. So, visit the secretary of state's website to get the exact information related to your foreign qualification.
Typically, apart from your home state, you should register as a foreign LLC if any of the following is true:
- Your business has a physical presence such as warehouses, offices, or retail stores in that state.
- You have a service-based business such as cleaning, landscaping, construction, etc., and employ workers in that state.
- You regularly hold in-person meetings with investors, managers, or clients in that state.
- You have a business license from the state.
- You have a property like a fleet of delivery vans in that state.
- You have a business bank account in that state.
How to Register as a Foreign LLC (Foreign LLC Qualification)
With a few changes, the steps of a foreign LLC formation are the same as the domestic LLC registration. You can register a foreign LLC in any state using these easy to follow steps:
- Select your state
- Check the LLC name availability
- Appoint a registered agent
- Get Certificate of Good Standing from LLC's home state
- File foreign LLC application
Select Your State
The process of Foreign LLC registration is slightly different in every single state. So, you need to follow the state's specific guidelines where you intend to form a foreign LLC. Select your state from the list below to learn how to register a foreign LLC by following the state-specific procedure of foreign LLC registration.
Check the LLC Name Availability
You need to conduct a thorough name search before filing your foreign LLC application to make sure that your LLC name is not in the use of any other business in that state.
If your LLC name is already in use in the state where you intend to form a foreign LLC, you'll need to file a Doing Business As (DBA) name, also known as a trade name or fictitious business name in some states.
Appoint a Registered Agent
You will be required to nominate a registered agent with a physical address in the state where you intend to register a foreign LLC. A registered agent is a person or an entity who can accept any legal notices and correspond with the state on your behalf.
You do not need to worry if you don't know anyone in that state whom you can nominate as your registered agent. You can hire any reliable registered agent service and stay worry-free. We recommend ZenBusiness, which provides satisfactory registered agent services in all 50 states for just $99 a year.
Many business owners feel reluctant when appointing a registered agent in the new state. Well, this is not something to worry about. If you don't feel satisfied with the current registered agent, you can change your registered agent anytime and nominate a new one.
Get Certificate of Good Standing from LLC's Home State
A certificate of good standing is a legal document usually issued by the secretary of state. This document verifies that your LLC is in good understanding with the home state, and you have been operating your LLC in a state-compliant manner. You can get this document for free. However, some states charge you a small fee for issuing the certificate of good standing.
The certificate of good standing is also known as the certificate of status in some states. Most states where you intend to apply for foreign LLC status require you to submit this document to verify that your LLC has no outstanding debts and taxes due to your home state.
File Foreign LLC Registration Application
Download the foreign LLC application and complete the required information. Then, sign the document and pay a registration fee to the secretary of state's office. Forign LLC filing fees vary from state to state and range from $50 in Michigan to $750 in Texas.
The document through which you register a foreign LLC has different names in different states. This includes:
- Application for registration of foreign LLC
- Application for the certificate of authority
- Certificate of registration of Foreign LLC
- Foreign registration statement
- Statement of foreign qualification to conduct business activities
- Certificate of authority
Alternative of Foreign LLC
One of the disadvantages of farming a foreign LLC is that if you declare bankruptcy at one LLC or are sued in one state, the LLC in the other state would be responsible for those debts and liabilities.
So, many business owners form a new LLC in any state where they intend to expand their business as an alternative to foreign LLC registration. So the liabilities and debt of one LLC do not affect the operations of the other LLC.
Consequences of Business Transactions Without Registering Foreign LLC
In business, no one knows for sure what will happen tomorrow. So, where you expect benefits, you should also take unforeseen circumstances into consideration. While conducting business in a foreign state, your LLC may get subjected to penalties, lawsuits, or a monetary fine.
So, in that case, your business will not be able to reap the same protection and benefits that come with a limited liability company. So, the most significant disadvantage of not registering a foreign LLC is that you don't have limited liability protection. Hence, if your company is sued, your personal assets such as your home, car, and personal savings will be at risk.
Cancellation of Authority to Conduct Business as Foreign LLC
Business owners mostly register as a foreign LLC if they plan to operate transiently as an out-of-state entity. Those who wish to move their business to another state permanently choose other methods such as LLC Domestication.
So, once you achieve the objective for which you registered your foreign LLC, you must cancel the authority to conduct business as a foreign LLC in that state. If you fail to do so, you will be liable to pay state income tax, franchise tax, annual report, and other requirements till the LLC remains registered with the state.
To cancel LLC's authority to conduct business as a foreign LLC, a certificate of cancellation of authority is filed with the department of state or a similar authority. In addition, some states require the foreign LLC to prove that it has no outstanding tax liability in the state where business was conducted as a foreign LLC.
Revocation of Authority to Conduct Business
If a foreign LLC does not comply with the state law or fails to fulfill its obligations, the LLC's authority to do business in that state may be revoked by the administrative act of the state filing officer.
Some of the reasons for revocation of authority to conduct business as a foreign LLC are given below:
- Failure to pay LLC taxes,
- Failure to pay LLC fees,
- Failure to timely deliver an LLC annual report,
- Failure to pay penalties owed,
- Failure to appoint and maintain an agent for service of process (registered agent)
- Failure to file a statement of change of agent or address
An LLC that has been administratively revoked may apply for reinstatement to resume its operations. However, you can only reinstate your LLC within a certain number of years after revocation.
FAQs on Foreign LLC
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