Fact Checked by Editorial Staff
A Limited Liability Company is always based on state rules. It is formed in a particular US state where it has the main operational center. However, if at some point of time in the future, the business owners decide to expand the Limited Liability Company beyond the home state borders and in other states, it will be entitled as Foreign Corporation or Foreign LLC. What is a foreign limited liability company?
For example, an LLC is formed in the state of Michigan. And now, it wants to expand the business to Connecticut or New York. Under such cases, the LLC will be termed as a foreign Limited Liability Company.
On this page, you’ll learn about the following:
Domestic LLC VS Foreign LLC
A foreign LLC and a domestic LLC are almost the same, with the only difference being in their workplace. When an LLC is registered, it should be done under a particular state in the US. If companies operate in the same state as the home, they are termed domestic LLCs.
However, if the business is extended to a different state other than the origin, the Liability company will be known as a foreign LLC. This is because, in terms of the state, the LLC company isn’t formed there and has its origin in some states.
This is the major difference between domestic and foreign LLC. But, apart from this, certain meager facts are also there, which set these two apart, be it the cost of forming the company in another state or the legal documents needed to do so.
Need to form an LLC as a “foreign” entity
Even though several liability companies have been set up as a foreign entity in many states, a question always lingers in the air- why it is necessary to start the business as a “foreign entity” in another state.
When a liability company wants to operate in another state other than the home state, with proper registrations, it will be able to transact the business under a foreign government. Moreover, declaring the LLC as a foreign entity will allow the public to gain more information pieces about the business, starting with the name, member names, business address, registered agents, and so on.
Apart from this, once the company fulfills all the requirements of a foreign qualification, the government will be able to impose the taxation and legal rules on the same so that no unfair and biased judgment can be passed.
States Where Foreign LLC is formed
Foreign LLCs can be formed in different US states, like Connecticut, Michigan, Oregon, New York, California, Vermont, West Virginia, Kansas, Indiana, Arizona, Georgia, and so on. Every state almost follows the same rule for forming the LLC. However, minute details are there, which vary according to the state government. To know more about those requirements, you can hire a professional consultant like GoDaddy for your foreign LLC.
Qualifications to Form a Foreign LLC
People usually start to plan for a foreign LLC without considering when to file the application for the same. If you want your foreign application to be accepted, you must pass the following foreign registration requirements.
- Having a business bank account
- Principal office location, warehouse location, or any other dedicated site
- Certificate for ownership of property
- A representative in case the company has a distributor or manufacturer
- Employees working in the company
How to Form a Foreign LLC?
Time needed: 30 minutes
Here are the simple steps to follow when forming a foreign LLC.
- Choose a business LLC name
The first step towards forming the foreign LLC is deciding the name of the company. The business name should be such that it doesn’t coincide with any existing corporation or LLC in the state, and also no keyword that would signify a government’s body. You can use popular business name search tools from professional consultants like GoDaddy to make sure your chosen name is legal and acceptable.
- Appoint a registered LLC agent.
What follows s hiring a registered agent to become your business’s first point of contact. The agent will be liable to carry on with all the taxation and legal works on behalf of your foreign LLC.
- Filing a certificate of existence or certificate of good standing
A certificate of existence or a certificate of good standing is essential to start up a foreign LLC. According to this document, it is proven that the company has met all the compliances and requirements stated by the government.
- File for the certificate of authority
Filing for the certificate of authority is the final step for forming a foreign LLC. This document will verify every operation and detail about the LLC, just like the Operating Agreement does for domestic corporations.
F.A.Qs
The cost of forming a foreign LLC varies from one state to the other. However, this fee is much higher than the registration cost of the domestic LLC. Apart from this, the LLC will be entitled to pay a franchise tax and an annual fee.
In case your LLC doesn’t have the proper documents for foreign qualification, you will not be able to pay the taxes, open a bank account, hire employees, and file taxes in the concerned state.
What if You Don’t Register as Foreign LLC
If you don’t register as the foreign LLC you might end up in legal troubles like fines and penalties, and inability to apply for loans, losing any kind of law protection within that state.
Operating as an unregistered foreign LLC can have serious legal implications. One of the primary reasons for registering your business as a foreign LLC is to ensure that you have legal standing to conduct business in the state. Without registering, you may be operating illegally, which can result in penalties, fines, and even legal action. Additionally, failing to register can also hinder your ability to access the state court system in the event of a legal dispute.
Another important reason to register your foreign LLC is to protect your personal assets. Forming an LLC provides a level of protection for your personal assets in the event that your business incurs debts or legal liabilities. If you choose not to register as a foreign LLC, you may be personally liable for any debts or legal claims against your business, putting your personal assets at risk.
Moreover, operating as an unregistered foreign LLC can also create confusion and mistrust among your customers and business partners. Registering your business provides transparency and legitimacy, which can help build trust with those you do business with. Without registration, it may be difficult to establish credibility and professionalism, potentially harming your reputation and hindering your ability to attract and retain customers.
In addition to the legal and financial risks of not registering as a foreign LLC, there are also potential tax consequences to consider. Operating as an unregistered business may impact your tax liability and reporting requirements, potentially exposing you to additional taxes, penalties, and audits.
Ultimately, failing to register your foreign LLC can have far-reaching consequences for your business. From legal liabilities and financial risks to reputational damage and tax implications, the decision to operate as an unregistered foreign LLC can have serious repercussions. It is in your best interest to comply with state registration requirements and ensure that your business is operating within the bounds of the law.
In conclusion, the importance of registering your foreign LLC cannot be overstated. Failure to do so can result in a range of legal, financial, and reputational risks that can have long-lasting consequences for your business. By taking the necessary steps to register your LLC and stay compliant with state regulations, you can protect your business, your personal assets, and your reputation in the marketplace.
In Conclusion
Having a foreign LLC in any of the states involves a series of paperwork and filing procedures. Before you form your foreign LLC anywhere in the United States, make sure you get all information regarding filing your LLC beforehand. Also, it is important to know about the restrictions on foreign businesses in a particular state before you start your foreign LLC in that state.