Do you want to expand your limited liability company into a new state, but you aren’t as familiar as you’d like to be regarding the foreign LLC registration process?
Operating a business in any state other than your home state can be a bit tricky, which is why we decided to write this article about the ins and outs of operating a compliant LLC in states other than your own.
As you read through this guide, you’ll learn all about running your business by the rules and regulations of a foreign limited liability company. How does this differ from a domestic LLC? What is the formation and registration process for a foreign LLC? We’ll answer these questions and many more in this guide to foreign LLCs.
What Is an LLC?
To begin, let’s quickly run down what the limited liability company is. The LLC occupies the middle ground between flexible entities like sole proprietorships and general partnerships, and the formalities of a corporation.
Like the sole proprietorship and general partnership, an LLC has “pass-through” taxation, which means that you don’t pay corporate income tax ― instead, the LLC’s owners claim profits and/or losses on their own personal returns.
Similar to a corporation, LLC owners receive limited personal liability, which prevents creditors from pursuing your personal assets (like your car, house, personal bank accounts, etc.) if they sue your business.
What Is a Foreign LLC?
There are two main types of limited liability companies, which are the domestic LLC and the foreign LLC.
A foreign LLC is not a company located outside the country, but rather a business based in any state other than your home state, and you’ll need a foreign qualification in order to run one in compliant fashion. As for the domestic LLC, this is a business that is based in your home state.
As an example, if you form a domestic LLC in Nebraska where you are located, and you want to start conducting business in Kansas as well, you will need to register your company as a foreign LLC in the state of Kansas.
One interesting wrinkle when it comes to these two types of limited liability companies is that you need to open a domestic LLC in your home state before you can register a foreign LLC elsewhere. In this way, the domestic LLC is by far the more common of these two business entities.
What Penalties Are There for Conducting Business Without a Foreign LLC?
The repercussions for operating a limited liability company outside of its home state without registering a foreign LLC vary depending on the state, but you can expect to face a hefty fine no matter what state it is. In general, it is much less expensive to register a foreign LLC than it is to pay the fine for failing to do so.
Quite a few states also will allow any vendor, customer, or other entity that you do business with to void their contract with your LLC if you don’t obtain foreign qualification.
Some states will prevent you from filing a lawsuit against any entity in that state, which opens you up to being taken advantage of in your business dealings. There’s also a good chance that your LLC’s owners will lose their personal asset protection, meaning that if there’s a lawsuit against your company, your creditors can pursue both your business assets and your personal assets.
Obviously, these possibilities have the potential to do much more damage to your company than paying a one-time fine, and all of these situations can be avoided by simply registering your foreign LLC in each state you conduct business in.
How to Register a Foreign LLC
The first step to registering a foreign LLC is to first form your domestic LLC in your home state. After that, in order to foreign qualify your limited liability company in a new state, you need to draft and file a document usually referred to as a certificate of authority, which is also known as a certificate of registration in some states.
In most states, you can find templates for the certificate of authority that you can simply fill out and submit to the Secretary of State. Like the articles of organization to form a domestic LLC, the information required for a certificate of authority varies from state to state, but in general you’ll need the following elements:
- Name and street address of your domestic LLC
- The industry your company operates in
- Name and street address of your registered agent
- Identities of your LLC’s owners
In addition, to obtain a foreign qualification, you’ll need to provide your new state with either a Certificate of Good Standing from your home state, or a certified copy of the articles of organization you submitted to form your domestic LLC.
Finally, you have to pay a filing fee to finish registering your foreign LLC, which is typically a bit more expensive than the fees to form a domestic LLC.
Can You Hire Someone to Register Your Foreign LLC?
It’s usually not too much hassle to draft your own certificate of authority, but if you’d rather hire a professional service to take care of this for you, there are options available.
One of those options is to hire a business lawyer to register your foreign LLC, which can be a good option if you have a large budget and you want the peace of mind that comes with an attorney’s expertise.
If you’re operating on a tight budget though, we tend to prefer using an online business services company instead of a lawyer. These companies usually offer foreign qualification service at much lower prices than an attorney’s fees, while still providing a high level of reliability and professionalism.
Let’s take a look at a few of our favorite companies for providing foreign LLC registration service:
- Northwest Registered Agent ($100): Northwest offers one of the most affordable foreign qualification services available online, as many of their competitors charge $200 or more. With Northwest, you’ll also receive their outstanding personalized customer support, making them a strong contender for foreign LLC service.
- Incfile ($149): While they can’t match Northwest’s low price point, Incfile has some of the best customer feedback in the industry, with thousands of positive reviews. If this is a priority for you, give Incfile a long look.
- LegalZoom ($229): LegalZoom doesn’t have impressive pricing, but they do offer a 100% satisfaction guarantee, and they serve a much higher volume of customers than either Northwest or Incfile. If you want to use the most popular service in the industry, LegalZoom could be worth a try.
All told, the process for foreign qualifying a limited liability company in most states isn’t too different from forming your domestic LLC.
As long as you have a compliant domestic LLC in any state, you can expand into additional states with foreign LLCs rather easily, as long as you provide all the relevant information required by your state.
Whether you choose to draft and file your certificate of authority yourself, or hire an online business services company like Incfile or Northwest to assist you with the process, we hope this article helped answer any questions you may have had regarding the role of the foreign LLC in the American business landscape.