If your limited liability company (LLC) is doing business in another state besides the one where you formed your company, you're probably going to need to set up a foreign LLC. But what is a foreign LLC, why should you form one, and how do you register your LLC in another state? Let's look at these and other frequently asked questions.
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Contrary to the way it sounds, a foreign LLC refers to U.S. companies. "Foreign" is a classification used for companies that do business in states other than the home state where the LLC was organized. A "foreign" designation can be used in the same way for other entity types that are registered with a state, such as corporations and limited partnerships.
States require companies to register as foreign LLCs (and foreign corporations and limited partnerships) to ensure these businesses meet the state's regulatory and tax requirements. For example, oftentimes foreign LLCs have to follow the same state annual tax and filing requirements that LLCs that were formed in that state must follow.
(For more about these ongoing requirements, see our state guide on LLC tax and filing requirements.)
A "foreign LLC" is an LLC that's doing business in a state that's different from where it was formed. A "domestic LLC" is an LLC that's doing business in the same state where it was formed. You can have both a foreign and a domestic LLC.
For example, suppose you organized your LLC in Michigan and you do business in both Michigan and Indiana. Your LLC would be a domestic LLC in Michigan because that's where it was formed. Your LLC would also be a foreign LLC in Indiana because it does business in Indiana but was formed in another state, Michigan.
A business can have different reasons for registering its LLC as a foreign LLC. Generally, there are two common reasons a business will register an LLC in another state:
Businesses often expand beyond state borders. For example, a surf shop in Carolina Beach, North Carolina might find it lucrative to open a second shop in Myrtle Beach, South Carolina. In that case, choosing to operate in another state could make financial sense and be a natural next step in the surf shop's business plan.
Most business owners form their LLCs in their home state. Others, however, never intend to do business in the state where they form their LLCs. Instead, owners choose to organize their LLCs in a state, not because of geography, but because these states are more friendly to LLCs. For instance, some states—like Wyoming and Nevada—have no corporate income tax. Other states have limited regulations on LLCs or laws that are favorable to LLCs.
Because of these tax and regulatory advantages, business owners will simply choose to register their LLCs in a business-friendly state and then operate in the state where they're physically located. Registering as a foreign LLC was part of their plan all along. (For more information on organizing your LLC in another state, read our article on where to form your LLC.)
If you registered your LLC in one state, and you're operating your business in other states as well, you'll likely need to register as a foreign LLC in each of those states where you're conducting business.
Each state has its own rules as to which types of business activities qualify you as a foreign business. Typically, you'll be required to register as a foreign LLC if any of the following is true:
Generally, your activities must be regular, repeated, and continuous to require registration. For example, a single, short transaction in a state usually doesn't require you to register your company as a foreign LLC. Additionally, states have activities that are exempt from registration. So, your business can engage in these exempted activities without needing authority from the state to operate there.
For detailed guidance on when you need to register as a foreign LLC, read our article about qualifying to do business outside your state. For state-specific guidance, check out our state guide to qualifying your foreign business.
In most states, the office of the secretary of state handles applications for foreign registrations, and you should check that state's requirements. Once you've determined that you need to register your company as a foreign LLC, you'll need to submit the appropriate paperwork to the state. The form is usually called a "certificate of authority," an "application for authority," a "foreign registration statement," or something similar.
The steps and application are similar to those you follow to form your LLC including:
Some states require you to also submit a certificate of good standing from the state where your LLC was formed to show you're legally authorized to operate in your home state. The document is usually available from the same state office where you filed your LLC registration. You'll need to be up to date on any required paperwork, fees, and taxes and, usually, pay a small fee, to receive a certificate.
An LLC can face various consequences for doing business in a state where it's not registered. Generally, if your foreign business isn't registered, you can't file or maintain a lawsuit in that state. If you do file a lawsuit in a state where your LLC isn't qualified, the court can pause your lawsuit until your LLC has properly registered, or dismiss your suit entirely.
Many states charge penalties that can be hefty if you're operating there without proper registration. Some states charge a flat fine for every month that you're doing business in the state without authorization.
You also could be required to pay the filing fees, late fees, interest, and penalties for the years you operated your business without authorization. For example, if you started doing business in 2020 but didn't register until 2022, then you could be responsible for the fees, interest, and penalties for 2020 and 2021.
But some things remain unaffected by foreign registration or the lack of registration For instance, typically the LLC's contracts and acts aren't invalidated because the LLC wasn't registered. Additionally, the LLC members' limited liability isn't usually affected. For instance, an LLC member usually won't be held personally responsible for the LLC's liabilities and obligations for the sole reason that the LLC didn't register.
An alternative to qualifying your foreign LLC is forming a new LLC in each state where you want to operate. You'd need to follow the procedures required by the state. But the advantage to forming a new LLC is that if you're sued or you declare bankruptcy at an operation in one state, your other operations wouldn't be responsible for that LLC's debts or liabilities.
The answer is it depends. Just doing a lot of business in another state doesn't necessarily mean you have to register there. Sometimes, states will require your business to pay sales tax but not require your business to register as a foreign LLC.
Sometimes, online sales in a state aren't enough to require you to qualify as a foreign LLC. Though every state is different and you should check each relevant state's foreign LLC laws. However, generally, if you have other operations in tandem with online sales, then you probably need to qualify.
For example, suppose you have an online business in New York selling trading cards and some of your sales come from Pennsylvania. You probably won't be required to register your business in Pennsylvania because interstate commerce (transactions between states) alone doesn't necessitate registration. But if you open a warehouse in Pennsylvania to speed shipments to your customers, you probably will have to register as a foreign LLC.
When it comes to foreign LLCs, you'll need to look at state law and common law (decisions from courts). While there's plenty of overlap between states, there's a range of variation between states when it comes to when and how foreign LLCs must register. So, your first step should be to look at the foreign LLC qualification laws for the state where you plan to operate. You should also look at the state government websites—for example, the secretary of state and department of revenue websites—for guidance.
Because there's so much nuance between states and you often have to look at case law for answers and direction, you should consider talking to a business lawyer. They can provide guidance on when you should register your foreign LLC and the consequences of doing business in a state without registering. An attorney can also complete the application process for you and advise you on your continuing legal obligations as a foreign LLC.