If you’re thinking about forming an out-of-state LLC, you’re not alone. Many entrepreneurs wonder if forming a business in a different state will save them money. And in some cases, it does. But forming an out-of-state limited liability company has drawbacks, too.
In this guide, we’ll cover all the essentials of out-of-state LLCs: the difference between a domestic and foreign entity, how to complete the registration process, the ramifications of operating an LLC out of state, and more.
Yes, you can live in a different state than your LLC. But “can” and “should” are two very different terms. Operating an LLC in a state you don’t live in is legitimate, but it’s not for everyone. Every state has different legal requirements for running an LLC. If you live out of state, it can be harder to keep track of these requirements. And there may be tax implications, too.
On the other hand, running an LLC in a “business-friendly” state can present lower start-up costs or easier maintenance. Ultimately, whether it’s good or bad to run an out-of-state LLC depends on the business, the business owner, and the state(s) in question.
If you’re deciding whether an out-of-state LLC is right for you, there are several factors to consider. Let’s cover each in more detail.
If you have a pre-existing LLC, you’ll have to obtain a foreign qualification to do business in another state. This process isn’t incredibly complicated, but it does require some additional steps. For starters, your LLC needs to obtain a Certificate of Good Standing (sometimes called a Certificate of Status or something similar) from its home state. This document essentially verifies that your business is compliant and up-to-date with all your state’s statutes.
After you have your Certificate of Status, your LLC will have to submit the Application for Certificate of Authority form (or similar document) in the new state. You may also need to register for an assumed name if yours isn’t available.
If you haven’t formed an LLC yet, you might consider starting out as a domestic LLC in that state instead by filing your Articles of Organization there. You can also move your LLC to another state if you need to.
The terms “Domestic LLC” and “Foreign LLC” can be a bit confusing, so let’s clarify. If an LLC starts out in a given state, it’s considered “domestic” to that state. A foreign entity, however, is a limited liability company (or other entity type) that was formed in another state and obtained permission to operate in the new state by obtaining a Certificate of Authority. “Foreign LLC” doesn’t mean an LLC in another country — just another state.
For example, let’s say you start an LLC in Delaware. You’re a domestic entity in Delaware. But if you expand into Massachusetts, you’d register as a foreign LLC in Massachusetts. In some cases, the initial filing fees for a foreign qualification cost more than a standard registration fee.
Completing a Certificate of Authority filing often isn’t the only step to file your LLC in another state. You might also have to publish a notice in a newspaper about your business presence. Or, you might have to file an initial report shortly after commencing business. Every state has different start-up filing requirements. Some states don’t offer online filings. Others have eliminated paper filings.
Additionally, every state has different expectations for annual registrations. Some states require just an annual report. Others only require a biennial report, and a couple don’t require any such report. Plus, some states have even more complicated annual requirements, including an annual business license and annual list of officers.
In short: no two states have the same filing requirements — both for starting out and maintaining your LLC.
Every state requires all state-registered businesses to appoint a registered agent to accept service of process (notification of a legal action, such as a lawsuit) on their behalf, regardless of whether they’re a foreign or domestic business entity. This individual or business entity accepts legal notices and other official communications in person.
In every state, the agent is required to have a physical address in the state, and they must be present at that address during all regular business hours. Merely having a mailing address in the state is insufficient.
Foreign corporations and foreign LLCs must maintain an agent in each state they operate in.
Taxes as a foreign LLC can be tricky, and you can expect to file tax returns in multiple states. Some states don’t have corporate income taxes, and some states don’t have personal income taxes. Some states don’t have any income taxes. Meanwhile, many states have a franchise tax or other tax that’s imposed for the privilege of doing business in the state. It’s difficult to keep track of how tax liabilities work in multiple states.
We highly recommend consulting with a licensed tax professional in your state(s) to ensure you’re complying with all tax requirements.
It can be tricky to know if your LLC needs to register as a foreign LLC; every state has different legal standards. In general, you have to register if you are “conducting business” there. But what constitutes “conducting business” varies. In some states, it means having a physical presence within the state or having regular commerce there. For example, a one-off purchase from someone out-of-state probably wouldn’t be considered conducting business. But having a seasonal shop in that state probably would.
If you’re unsure about whether you’re conducting business in a given state, we recommend getting legal advice from a local business attorney. Failing to obtain a Certificate of Authority in a state can have serious consequences, including hefty late filing fees, late tax penalties, and a loss of good standing. You might even face administrative dissolution.
If you’re operating in multiple states, there’s a good chance that you’ll be subject to the laws and regulations of both states. That can make compliance tricky. Plus, every state has slightly different approaches to personal liability protections, especially for single-member LLCs. It’s hard enough to be familiar with business law in one state, not to mention two or more. With the right team, you can navigate this challenge, but you’ll want to be aware of it.
A big advantage to forming a business in your state is that you’re probably pretty familiar with the resources in your area. You probably know (or can easily find) the local entrepreneur’s support group, the licensing agency for your city or county, and local regulations and small business grants. You can also easily network with other professionals who can help your business grow.
But if you’re operating as an out-of-state LLC, odds are you’re not as familiar with these connections. You might not be aware of state professional license requirements. You can certainly still be successful, but this lack of familiarity can present challenges.
Expanding or starting your business in another state is complicated, but it’s an exciting prospect! And you don’t have to do it alone. ZenBusiness doesn’t currently offer foreign registrations, but we can help with other business red tape so you can focus on what matters: your business. Whether you need a registered agent for a new state, help checking if your business name is available, or long-term stress-free compliance, we can help.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
LLC members can live in multiple states, and this often happens if an LLC has members who prefer to be investors without an active role in managing the business. For many LLCs, though, the members all live in the same state.
If an LLC is operating in multiple states, it’s ideal to use the same business name in each state. That helps maintain brand continuity. But technically, two different LLCs can use the same name if they’re in a different state.
Each state requires business names to be distinguishable from other names in use in that state. Whenever an LLC expands into another state, it should check that its name is available in the new state. If it isn’t, they’ll need to register for an assumed name (sometimes called a fictitious name registration). Please note that you’ll also have to consider federally protected trademarks when checking name availability.
Yes. A Texas LLC can operate in another state if it completes the foreign LLC registration process.
Florida doesn’t require you to be a resident of the state to start an LLC there. However, you must appoint a registered agent with a physical presence in the state.
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When it comes to compliance, costs, and other factors, these are popular states for forming an LLC.
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