A foreign limited liability company is what some business owners decide to set up when they are operating an international business because foreign LLCs are business entities that operate in a country other than their place of origin.
This is precisely why they are sometimes referred to as "out-of-state" entities. They are not the same as traditional limited liability companies, but they do have some similarities.
It can be set up in any state, even if the person setting up the LLC does not live there at all. This article will cover what a foreign LLC is and what it means for business owners to form one.
How Do Foreign LLCs Work?
A foreign entity is one that does not form in the state where it will operate. Instead, foreign LLCs are formed in states other than your home state (the one listed on your Articles of Organization) and then register to do business in your home state by filing an Application for Registration with the Secretary of State office.
Foreign LLCs are limited liability companies that are business entities that are formed in another U.S. state and registered to do business in your home state.
Most states allow foreign LLCs to register and do business in their state even if they were formed outside of the U.S.
The first thing you need to understand about foreign LLC registration is that each state has its own rules for doing so, which means there are many different processes with slightly varying requirements for getting registered.
The regulations one state imposes on foreign entities can differ from those in other states, so before you decide to set up a foreign limited liability company, make sure to research the federal requirements.
A foreign entity will operate similarly to a domestic LLC. That implies that it will have the power to transact business, be taxed as a separate entity for state and federal tax purposes, enter into contracts in its own name, and hold property in its own name.
How to Know if You Need a Foreign LLC?
Conducting business in one state doesn't necessarily imply you have to register as a foreign LLC in another state.
If you are doing business in more than one location, then the answer is pretty simple: yes - you need a foreign LLC.
If your address or headquarter, for example, are located in Florida but do business across U.S. borders, then the chances are that you have to register as a foreign LLC.
The same applies if you're a resident of, say, Texas but have a physical business in California, such as a warehouse, a bank account, or real estate.
What about residency?
It's not what you think - it has nothing to do with your personal state of residence but the business' location, which is determined by its physical address or where its bank accounts are located (if any).
There are some specific cases where you might not need to register as a foreign LLC.
For example, if all your business activity is taking place online and there's no physical presence in any other state, then you don't actually have to do anything; the law will consider your business to be "domestic."
If you're still unsure whether or not you need a foreign LLC for interstate commerce, then it's always best to consult an accountant or attorney who specializes in business law.
However, the safest way to be sure if your need a foreign LLC is to visit the Secretary of State's website or contact them directly.
They will be able to help guide you through the process and make sure that your business is compliant with all state and federal regulations.
"Transacting business" is not limited to commercial activities only. Most states describe and allow business activities that a foreign LLC can undertake without registering.
These lists frequently include such activities as commencing lawsuits, having meetings with members or managers, conducting internal affairs, maintaining bank accounts, hiring independent contractors, and so on.
How to Set Up a Foreign LLC?
Foreign registrations are one of the most popular ways to establish an LLC. Foreign registration is when a company is formed in another state or country other than where you live, work, or do business.
If you want to conduct business in another state, setting up a foreign LLC might be the best option for you.
This is because it allows you to keep your business and personal affairs separate, which can help with tax planning and liability protection.
Different states require that you apply for the registration of a foreign entity using different application forms.
So, for example, the application for foreign registrations might be called a Certificate of Authority, an Authority Application, a Statement, and Designation by a Foreign Corporation, a Foreign Registration Statement, or a Certificate of Registration of a Foreign LLC.
There are a few key things to keep in mind when setting up your foreign LLC:
- You will need to appoint a registered agent for the service of process in the state where you register your LLC. This is an individual or company that agrees to accept legal papers on behalf of your LLC.
- You will need to register under a unique business name. Make sure to perform a name search before you file your registration form.
- Once you have established your foreign LLC, it's important to follow the rules and regulations of that state. Failure to do so can result in fines or penalties from your home state, where you originally formed your company.
- It is a good idea to review states' articles of the organization before filing for registration. Each state has unique requirements when it comes to the management and governance of an LLC.
The registration fee varies depending on the state where you will be transacting business. The fee can vary from $20 to $600.
If you operate across multiple states, you might need to acquire a Certificate of Good Standing from the state where you initially registered and file it along with the foreign registration form.
Louisiana, Maine, Connecticut, Georgia, Florida, Idaho, Iowa, Kansas, Maryland, Massachusetts, Nevada, South Dakota, North Dakota, Washington, and Ohio are the states that require the Certificate of Good Standing from foreign LLCs.
How Are Foreign LLCs Taxed?
Regulatory and tax requirements for foreign state entities conducting business in other states can differ from those imposed on domestic LLCs.
Paying state taxes as a domestic LLC can be achieved by filing different forms with the IRS. This form designates the LLC as either a disregarded entity or an association taxable as a corporation for federal tax purposes, depending on state law and how it is organized under state laws.
In addition to the designated classification of foreign LLCs, income must also be apportioned to states in which the LLC conducts business.
This is generally done through a process called "nexus," which is determined by state law and IRS rulings.
Generally, a foreign LLC will only be subject to tax in the state where it has established a physical presence via employees or real estate holdings. Income generated from other states will not be taxed in those states.
Steven Ireland of Creation Business Consultants adds that relevant double tax treaties between the country where the LLC is registered and the country where the LLC operates or generates income should also be considered.
These treaties often contain provisions to avoid double taxation and provide guidance on the allocation of taxing rights between the countries involved.
FAQs
How Long Does It Take To Get a Foreign LLC?
The processing time for a foreign LLC is similar to the time required to register a domestic company.
Some states take only a few business days to process the paperwork, while others can take up to a few weeks. The fee for filing the documents also varies from state to state.
What Is Required for Foreign Qualification?
Foreign registration requirements will depend on your business structure. A foreign LLC will need to qualify to do business in each state it operates.
The process for qualification is generally the same as registering a domestic LLC, but there may be specific paperwork or fees required. You'll also want to appoint a registered agent in each state and create an operating agreement.
Does an Online Business Need to Register as a Foreign LLC?
Generally, no. If your business is based in the United States and you are doing business in the U.S., then you do not need to register as a foreign LLC. However, there are some exceptions to this rule.
For example, if your online business has a physical presence in a foreign country, such as a warehouse or office, then you may need to register as a foreign LLC in order to legally do business in that country.
Can a U.S. Citizen Own a Foreign Company?
Yes, a U.S. citizen can own a foreign company. A foreign LLC is a great option for business owners looking to expand their operations into new markets.
There are several benefits of using a foreign LLC, including reduced taxes and increased privacy. If you're interested in starting a foreign LLC, be sure to consult with an experienced attorney.
Do I Need a Registered Agent for a Foreign LLC?
If you have a physical location for business activities in a certain state, even as a foreign entity, you need a registered agent.
The registered agent has to sign the statement of acceptance and agree to serve as your registered agent. These documents are filed along with other registration forms with the Secretary of State's office.
Do Foreign Llcs Need to File an Annual Report?
Yes. LLCs and other entities need to meet regulatory filing requirements with the state in which they are organized.
This usually includes filing an annual report, although specific requirements vary from state to state.
Can an S Corp Own a Foreign LLC?
Yes. An S corporation can own a foreign limited liability company. However, that entity must be a disregarded entity for U.S. tax purposes and can't be taxed as an S corp itself.
Conclusion
Registering a new LLC as a foreign entity can be complicated, but it is necessary to stay compliant with state regulations.
To ensure that you are following the law and staying within your legal boundaries, consult with a law firm before proceeding so they may help guide you through the process.
An accountant or tax professional will also need to be consulted in order for you to remain on top of what's required by both federal and state governments.
