Serving all 50 states with local offices in California, Florida, Illinois, Nebraska, New Mexico, Tennessee, Texas, and Virginia.
 Call Us (888) 992-4952
  My Account        0 items -$0.00

When to Register Foreign LLC

Definition

A foreign limited liability company, or foreign LLC, is defined as a LLC that was formed in one state (i.e. its domestic state) and registered (as a foreign entity) in other states because it is transacting business in those other states. The foreign registration tells the appropriate state or states about the company and where it’s domesticated, permitting it to conduct business in that state.

When to Register a LLC as a Foreign LLC

Unfortunately, this is a very hard question to answer as most states are unwilling to advise businesses on what it means to “transact business” or “conduct business” in the state, and instead, most states have rules on what is NOT conducting business in the state.

In general, simply “doing business on the Internet” without something more, is not enough to say you’re “conducting business” in a particular state. Of course, if a majority of your business seems to be coming from a particular state, then it becomes harder for you to say you’re not “conducting business” in that state. Similarly, if you’re advertising exclusively in a state in an attempt to obtain business in that state, it will be hard for you to say you’re not “conducting business” in that state.

If any of the following questions apply to you, you should really consider looking more carefully at the law within that state to determine whether you should file your LLC as a Foreign LLC in that state:

  • Own real or tangible property in a state?
  • Employing one or more people (as W2 employees) in a state?
  • Operating a retail outlet or store in a state?
  • Obtaining a significant portion of your revenues (25% or more) from a particular state?
  • Maintaining a portion of your operations within a particular state?
  • Devoting specific resources or advertising within a particular state?
  • Required to have a special license, permit or other permission within a particular state?
  • Would a reasonable person believe you’re transacting or otherwise conducting business in the state?

To help you evaluate this, we’ve compiled the relevant law in each of the 50 states. Select your state, and see what the law says about “conducting business” in the relevant state. We’ve done our best to summarize the legal issues, cite to the relevant statutes, and indicate what the potential penalties for not properly registering may be.

In general, almost all states have some form of financial penalty. Most states won’t permit unregistered companies from bringing a lawsuit in the state. And, some states will void your contracts.

If you have questions, please do not hesitate to contact us or a good business attorney in the relevant state in question. This article, as well as this website, should not be used as a substitute for professional tax and legal advice by competent professionals.

Select a state above to see more about that state’s relevant laws on the subject …

18 comments

  • Larry,

    Thanks for this site. The information you provide is most helpful. My question relates to Illinois regarding the provision regarding “not considered transacting business” if the contract requires execution outside the State of Illinois. I have a company that provides SaaS (software applications) that are accessed within the state but servers located in a completely different state and the Agreement executed outside of the state. No software is delivered to the user, just access to the software which incurs a periodic fee. Do I need to register in Illinois?

    • Hi, Jerry.

      I really don’t have enough information here to give you a good answer. You need to look at the totality of the circumstances, and if ANY of the following is true, you’re probably “transacting business” in IL even if you don’t want to:

      – Paying W2 wages to any IL resident, including yourself
      – Using IL as a “base of operations” for your business, even if servers and your SaaS-based User Agreement references another state as the jurisdiction for the agreement
      – A “significant” percentage of your customers/clients are located in IL — “significant” meaning somewhere in the range of 20% to 25% or more of your clients are IL-based

      Larry.

  • Hello,

    My husband and I have a joint LLC in Florida, however, and we work as independent auto appraisers, so we work in various states. Do we need to register or file for a foreign LLC in every state that we work in? Although we’re independents, we get our work through appraisal firms and they tell us where we work and they pay us for our work.

    • Hi, Liz.

      Unfortunately, this is a difficult question to answer. Every state has its own laws on this, so it depends on what you’re doing, where you’re doing it, and a few other factors (i.e. frequency, percentage of business in a state, etc).

      I can give you some guidelines, but none of these are determinative. You really need to consult with a local attorney in the state (or states) where you think you may have a problem.

      • Is 20% or more of your work in a particular state? This argues you’re “doing business” in such a state, and probably should register.
      • Do you need to hire W2 employees in any particular state? Need to register.
      • Do you have a base of operations in a state, renting, leasing or otherwise “purposefully availing” yourselves in a particular state? May need to register.

      It’s very difficult to give you a specific checklist, unfortunately.

      Larry.

  • Hi Larry,

    I’m looking to create an LLC for an internet-based business. I’m in Illinois, but taxes here make filing in Delaware or Nevada attractive. The only work I expect to do in IL would be:
    – Have a bank account
    – Maintain website information from home
    – Coordinate orders/shipments from the manufacturer.
    This all appears to be fine and allowed without filing a foreign LLC declaration for IL.

    If I expand and want to rent local storage facilities to hold stock on hand, is this now transacting business and requires a foreign LLC filing?

    What if I fill orders and ship from IL to locations across the US? (I will not have a physical sales location, nor do I think my business will get a high percentage of IL customers.)

    Last, does filing a foreign LLC in IL mean that I need to pay IL state tax for business income?

    Thank you!

    • Hi, Tim.

      It’s hard to give you a black-and-white rule here, on when you are versus “are not” conducting business in IL. I will say, the general rule is that states are getting wise to “Internet only” companies and are working to create laws and rules that permit them to tax their residents who are conducting business on the Internet. The State of California is an example of a very aggressive state doing this. IL isn’t too far behind.

      I can say that if you have one or more W2 employees (including yourself) in IL, or your company has its “base of operations” in IL, then the State of Illinois says you’re “doing business in Illinois.” Do some of the activities you’ve listed rise to the level of having a “base of operations?” Sounds like it. Coordination, maybe. Drop shipping, definitely.

      But, let’s make sure we have our eyes on the right issue. You said “taxes here make filing in Delaware or Nevada attractive.” I assume you mean income taxes, correct? Sales taxes are a completely different issue, and where your company is filed will be irrelevant from a sales tax perspective.

      So, if you really mean income taxes, then let’s explore that a bit. A LLC has 4 different tax options: Disregarded, Partnership, S-Corp and C-Corp.

      Of those 4 tax options, Disregarded, Partnership and S-Corp, are called “pass-through” entities. Only C-Corporation is the only tax status that is taxed at the state level. The pass-through entities pass their profits and losses on to the owners, and the owners then report that income on their personal taxes, to pay state and income tax personally depending on the state they live in.

      If you want to tax your company as a C-Corporation, it creates the opportunity for double-taxation — so most small businesses do not elect for C-Corp tax treatment. Instead, pass-through is the norm. If that’s true, then you’re not going to see any tax savings by forming in another state.

      Larry.

  • Hi Larry,
    I appreciate your site and information.
    I created a consulting business (single owner LLC) in WI before leaving to Michigan this past December. I have a registered agent in WI and am now perplexed about what to do in MI. Due to having a great consulting gig from the WI EIN number in which I would have to re-bid if I continue working for this business, do I form a foreign entity in Michigan to ensure I keep this opportunity?
    I no longer have my own physical presence in Wi except for the registered agent. Thoughts?
    Thanks,
    Lee

    • Hi, Lee.

      Thank you for your question.

      I think you have a number of options at your disposal to maintain your existing FEIN. The best option is to actually domesticate your WI LLC in MI. You can learn more about this, see pricing and order with the following link: https://www.l4sb.com/product/move-llc-to-different-state/?target-state=Michigan&domestic-state=Wisconsin.

      The advantage with Domestication, is that your WI LLC actually becomes a MI LLC and is no longer registered in WI. This means no more reporting in WI. No taxes to report. Nothing.

      The other option is to foreign file your WI LLC in MI, which means your LLC is “doing business” in both WI and MI, even if there is little to no business being conducted in WI anymore. We can do this for you for a low, flat-rate fee. Use the same link above, just select “Foreign LLC” instead of “Domestication”.

      What’s the difference? Domestication actually moves the LLC itself. Foreign LLC registration means the LLC is still domesticated in WI, but also doing business in MI. This MAY BE OKAY if your LLC is being taxed as a disregarded entity (although I am unfamiliar with the laws of WI, so I cannot tell you whether you have other legal requirements, like annual reports or sales taxes). This will be a pain, if your LLC is taxed any other way. For example, if your LLC is taxed as a S-Corp, you’ll usually still need to submit a partnership return in both WI and MI, even though S-Corp is a pass-through entity.

      Clear as mud? Larry.

  • Very, very informative website, wish I would of found awhile back. I’ve Googled until my fingers hurt on finding out something … thought I’d give a shout out. I have an LLC in California – I also have (2) DBA’s under that LLC. Now I’ve filed a foreign Qualification in Georgia so I can do Biz and have protection. My question .. are the DBA’s A) protected in Georgia?
    Thanks

    • Hi, Rich.

      DBA’s you use in CA are irrelevant for GA purposes, unless (1) you have some sort of federal protection (i.e. trademark) or (2) you file those DBA’s in GA.

      Larry.

  • Very grateful for your website and the articles you write, Larry. My question is similar to the one from “Bob” but the difference is in what my “product” is–like Bob, I have no employees and only have a physical presence in my home state. Unlike Bob, instead of selling & shipping products my business will (initially) provide website & software design/development services.
    I already have my first customer ready to receive services as soon as my company is registered, and the customer resides in a different state. Going forward I expect to have more customers residing in different states; do you think it would be necessary to register my company as a foreign LLC in whatever state I have customers, though my company isn’t technically selling/shipping products?

    • Hi, OD.

      Before I answer, please understand that every state has its own rules about this, so it’s impossible for me to give you a very specific and accurate answer that will hold up in all circumstances.

      With that said, if you are “purposefully availing” yourself of a particular state, you’re going to need to register as a Foreign LLC. What does that mean? Again, each state has its own rules around this although there are court cases that do put some rules around this (I won’t dive into those court cases), but I’ll give you some general guidelines.

      First, if you’re specifically marketing your services into a specific state or attempting to sell to specific residents of a state, then you’re “purposefully availing” yourself of that state.

      Second, if a significant percentage of your customers tend to be in a particular state, you’re probably “purposefully availing” yourself of that state. What is a significant percentage? Depends, but I would say 25% or more is a good rule of thumb.

      Third, even if you’re not specifically marketing your services into a specific state, but you are providing services that appeal to specific states or their residents, you would be “purposefully availing” yourself of that state.

      Finally, if you hire any W2-based employees in a particular state, you are “purposefully availing” yourself of each state you have a W2-based employee.

      Larry.

  • I am in the same boat as this other poster and have been researching this topic with the new sales tax laws. I figure they will eventually start making out of state businesses start paying some kind of income tax. I have an online business shipping into all 50 states but am a sole prop….. do any states require remote sellers with no nexus in their state (minus sales tax, I am familiar with those laws) to file with them for any reason if they are a sole prop?

    • Hi, TJ.

      Are you asking about income taxes? If so, I’m not aware of any states that do this, and currently, the Sup. Ct. decision on sales tax is very limited in scope, and doesn’t address income taxes.

      Larry.

  • Larry,
    Quick question, I am starting a business where I will be an LLC-scorp. I will have no employees and will only have a physical presence in my home state. I will have an eCommerce website strictly selling toys and shipping them by common carrier into other states and will have no banks, employees or anything in other states just my home state. Do you know which states I will have to (if any) I will have to foreign qualify with? I read the federal law of interstate commerce should prevent me from other states from taxing me?

    • Hi,Bob.

      Thank you for your question, which seems like such a simply question to answer. The problem is, it’s a very difficult question to answer for the following reason: Each state has its own laws pertaining to “purposeful availment” of a state, and because I’m only licensed in New Mexico and Illinois, I really cannot tell you as a matter of law for any state but those two.

      Even for those two states, you haven’t given me enough information to give you a good answer (believe it or not). Physical presence isn’t the only test. If a significant percentage of your customers are located in a particular state, that state could argue you’re “purposefully availing yourself” of that state. If you’re directly advertising or marketing in a particular state, that state could also argue you’re “purposefully availing yourself” of that state.

      I do think it’s safe — for the time being — to say if your customers are evenly distributed across all states in the US, you’re probably okay in not having to foreign register your company anywhere.

      You did bring up tax issues, but you didn’t specify income versus sales tax. I think income tax is related to the foreign filing requirement we discussed above — meaning that if you are not purposefully availing yourself of a state, such that you would be required to foreign file your company in that state, then you wouldn’t have an income tax issue in such states.

      For sales tax, that’s a different issue entirely. Take a read of the latest South Dakota v. wayfair decision by the US Supreme Court. States can now demand that out-of-state vendors who sell products or services in their states, are subject to collecting sales tax and paying it. And as you can imagine, states are moving quickly.

      Larry.

      • Thanks for replying Larry! I am actually on in queue right now with Illinois to ask this question haha.

        I done tons of research on sales tax which I feel comfortable enough to answer on my own for each state but I am specifically talking about having to register to file any forms or file corporate taxes or anything besides sales tax since I am an LLC-scorp shipping items into the state. All my orders will be spread out over the 50 states so I would not have a large portion of my business in one state. The only advertising I will do is on google shopping and email marketing. So customers will search for my products see my ad and other competitors then place the order on my website and then I ship by common carrier to them.

        I read federal govt has a “interstate” commerce law and I don’t know how that applies…

        • Hi, Bob.

          I don’t think you need to worry about income tax issues at this time, except for those states you are “transacting business in,” which means those states you need to register your company in.

          Larry.

Leave a Reply

Your email address will not be published.

top