A foreign LLC or corporation is an existing corporation (or type of corporate entity, such as a limited liability company, which is also known as an LLC) that conducts business in a state other than the state in which it was originally incorporated. The term refers to both domestic corporations that are incorporated in another state as well as international corporations that are incorporated in a country other than the United States of America (known as “alien corporations“). Foreign LLC or corporations must register with the state before they can conduct business in that state, according to state regulations.
So it is clear that, when an LLC expands beyond state lines, it is considered “foreign” by all states except the one it was founded in. It is important to register as a “foreign LLC” in any new states you conduct business in. Failure to do so can lead to serious legal consequences, incurring financial penalties, and voiding important legal contracts.
There are some activities that a limited liability company engages in that do not qualify as “transacting business.” Activities that are not considered transacting business and that a foreign LLC may engage in without having to register are listed in the majority of state LLC statutes. Here are examples of activities that fall into this category:
- Engaging in litigation
- Holding meetings of members or managers
- Conducting internal affairs
- Maintaining bank accounts
- Selling through independent contractors (including debt collection)
- Engaging in a single or isolated transaction
Consequences of doing business without registering
A limited liability company conducting business in a foreign state is not permitted to file a lawsuit in the foreign state’s courts until it is registered. Additionally, a foreign LLC that conducts business in a state without first registering may face a monetary penalty. The fines are based on the notion that an unregistered foreign limited liability business should not be allowed to enjoy the same benefits and protections as a domestic or registered foreign limited liability company without paying for them.
The majority of activities provide that an LLC’s failure to register will not affect the legality of its contracts or acts, preclude it from defending an action in state court, or waive its members’ or managers’ responsibility limitations. Additionally, after the previously unregistered foreign limited liability business registers and pays any applicable penalties, it will be entitled to the same rights, privileges, and protections as any other domestic or registered foreign limited liability company.
When Should You Form a Foreign LLC?
If you created your LLC in one state and you are operating your business in other states as well, you need to register as a foreign LLC in each of those states where you are conducting business.
Each state has its own rules as to what types of commercial operations classify you as a foreign business. You can generally find those rules on the website of the secretary of state’s office. Typically, you’ll be required to file as a foreign LLC if any of the following is true:
- You have a physical presence such as offices, warehouses, or retail storefronts in the state.
- You hire workers in the state.
- You hold regular, in-person meetings with managers, investors, or clients in the state.
- You have a business license from the state.
Just doing a lot of business in another state doesn’t necessarily mean you have to register there. If you have an online business in New York selling surfboards, for example, and the bulk of your sales come from California, you probably won’t be required to register your business in California because interstate commerce alone isn’t a criterion. But if you open a warehouse in California to speed shipments to your customers, you will probably have to register as a foreign LLC there.
An alternative to foreign registration is to form a new LLC in each state where you want to operate. You would need to follow the procedures required by the state, but the advantage is that if you are sued or you declare bankruptcy at an operation in one state, your other operations would not be responsible for any debts or liabilities.
How to Form a Foreign LLC
Generally, applications for foreign registrations are handled by the office of the secretary of state; nevertheless, you should double-check the specific requirements of your state.
Depending on the state, the application may be known by a variety of names, including but not limited to:
- Application for the registration of a foreign limited liability company
- Registration of a foreign limited liability company
- Submitting an application for a letter of authorization
- Submission of an application for registration
- Certificate of Registration for a Foreign LLC
- Declaration of registration in a foreign country
- Qualification to do activities in a foreign country statement
- Authorization letter, or certificate of authority
- A foreign corporation makes a declaration and makes a designation.
The steps and application are comparable to those you used to incorporate your LLC, and they include the following items:
Make a search for the company’s name: Before submitting your application, you should check to see if your company name is already being used by another business in the same state as you.
Appoint a registered agent to represent you: You will require a registered agent with a physical address in the new state who will be able to accept any legal notices on your behalf. You can appoint a registered agent to represent your company in exchange for a fee, or if you have a physical presence in the new state, you can appoint an employee who works from that location.
Make a formal application: You should submit your completed application along with a registration fee to the Secretary of State’s office, or whichever state body is responsible for these files in your jurisdiction.
A certificate of good standing from the state in which your LLC was created, as well as proof that you are legally authorized to conduct business in your home state, may be required by some states as well. The document can be obtained from the same state office where you registered your limited liability company. In order to obtain a certificate, you’ll need to be current on all applicable paperwork, fees, and taxes, as well as paying a nominal cost, which is normally a one-time charge.