Chapter 15
IN THIS CHAPTER
Foreign-filing your LLC
Handling business licenses in multiple states
Managing a multi-state company
With technology advancing at a blinding pace, the world is getting smaller by the hour. Throw up a website, and all of a sudden you’re transacting business with customers all over the globe! The world is yours for the taking. Just keep in mind that when you’re wheeling and dealing all over the map, the various states and countries in which you touch down are going to want a piece of the action.
Although the implications of having physical operations in multiple countries can get very complicated and are beyond the scope of this book, there is a very good chance that eventually your LLC will go national. And that in itself can be a quagmire if you don’t have a road map to guide you.
If you’re simply selling to customers in a particular state, then you aren’t beholden to that state in any way. However, things change when you get into hiring employees and owning or leasing property. You need to know whether, according to the laws of the state in question, you are considered to be transacting business there. The definition is usually left vague and open-ended … and most often ends up in the state’s favor.
If you think that you may be transacting business in a particular state, you need to know how to formally take your company to the national level. With proper planning and the right help, the process of going national can be as exciting as it gets. So have fun with it, big shot!
Say you have a restaurant in Florida, your home state, but want to expand into Georgia and North Carolina. When you open locations in those states, you are doing business there. By law, if you’re doing business in states other than the one in which your LLC was formed, you must register in those states. This is called foreign-filing. The foreign-filing process is similar to the formation process, but it’s always in addition to the initial formation. Your domicile (the state in which your LLC was formed) doesn’t change; foreign-filing just makes it legal for you to transact business in the other states in which you’ve registered.
The term doing business is important in LLC law because it creates the guidelines under which you may or may not be required to foreign-file. Of course, you’ll want to foreign-file in as few states as necessary. With each additional state comes additional laws to learn and red tape to follow, as well as some pretty hefty fees. Unfortunately, as you find out in the next section, foreign-filing is sometimes necessary.
Determining whether you’re actually “doing business” in another state can be difficult. What if you tend to ship your products to customers across the country, yet your office and all your employees are housed in your LLC’s home state? Which state’s laws must you follow? Remember, each state’s laws are different. However, if you think that you might be required to foreign-file in a particular state, here are a few questions to guide you:
If you answered yes to any of these questions, then there’s a good chance that you are doing business in the state and are required to foreign-file your LLC there.
Yes, it’s a necessary evil, but with the help of your registered agent and perhaps a good advisor, foreign-filing can be a breeze. Just be aware that if you’re planning on doing business in numerous states, the filing fees can get pretty hefty, especially considering that a lot of states charge more for filing foreign LLCs than they do for domestic ones. Unfortunately, you can’t get out of the fees, but at least you can try to incorporate these costs into your budget.
Registering (also called qualifying) your business in another state is remarkably similar to the formation process. This stuff should almost be second nature to you after creating your original LLC. (I cover those steps in Chapter 6.) Registering is relatively easy, and foreign entities generally have less paperwork to deal with in terms of certain licenses and permits after the registration is completed. Whew … something to look forward to!
When you register, you submit an application. In many states, this application is referred to as a certificate of authority. You can download the basic form off the secretary of state’s website for the state in which you are attempting to register, or you can have a formation company create the application for you.
When filling out the application, you’ll likely have to provide the following:
Although it may sound sexy to say that you’re a nationwide company, every state in which you register to transact business brings a pile of paperwork and loads of fees. Your annual or biannual filings may include
Depending on the state, many other filings may also be required.
Because of the multitude of filings that are required for every state in which you are transacting business, you may want to consider hiring a formation company to handle everything for you. That way, you can maintain compliance and spend your time running your business rather than struggling with strange filings for states you aren’t familiar with and, worse, trying to remember when all those filings are due.
The Big Four registered agent companies offer services tailored to each state. The Big Four include
www.cscglobal.com
)ct.wolterskluwer.com
)www.incorp.com
)www.nrai.com
)For instance, for $99 per state, InCorp offers a Company Compliance & Resident Agent Service that tracks your filings, filing dates, mail forwarding, and so on. It also has an online system where you can view all your filing dates, your filings, your corporate documents, a compliance calendar that lists the due dates of all your filings, and so on. These compliance tools — common among the Big Four — are a huge help because filing dates vary from state to state, and the tools can keep you from paying hefty late fees for missed filings. Most smaller registered agents don’t have the technological proficiencies that bigger agencies can afford.
In every state in which you foreign-file, you need to file an initial report. This report is usually identical to the initial report that you file when forming a new LLC, which I show you how to do in Chapter 13. You need to make sure that the information you submit in one state is the same as the information you submit in another state. When you’re doing many filings in other states, sometimes it is hard to remember that your LLC is still only one entity with one set of members and one federal tax identification number.
If you are foreign-filed in multiple states, you need to apply for state and local business licenses, just as you would if you were forming your LLC in that state in the first place. Use your corporate office address in that state to determine your local jurisdiction (the city or county). If you’re using your registered agent’s address as your corporate office address, then use that zip code to find which local agencies you need to register with. Your registered agent should have this information.
In addition to general state and local business licenses, your LLC may need to obtain other special permits, depending on the type of business you’re engaged in. For example, if you’re operating a physical office in that state, then you may have to obtain a use and occupancy permit. If you’re engaged in a heavily regulated industry such as alcohol, then you may need to obtain special alcohol permits. In Chapter 13, I show you how to file for and obtain the requisite business licenses for your LLC. This information is applicable to foreign-filed entities as well — the only difference is that you’ll be doing it in multiple states rather than just the one in which your LLC is domiciled.
If you determine that you are, in fact, doing business in multiple states, the tax man in each state will want a piece of the action. How much will you owe? Well, that depends. Each state handles taxation differently. In general, each state requires you to allocate a percentage of your sales according to an apportionment formula, because sales figures alone don’t give a complete picture of how much business you are doing in that state. For example, you may have your headquarters and manufacturing operations based in Rhode Island but make most of your sales in other states. The formula entitles Rhode Island to a larger share of your income.
Fortunately, most states use a common formula involving three factors of your business:
The states average these three factors to determine how much business you are doing in each state. Because a particular state may use a different formula than the rest, you could end up paying taxes on more or less than 100 percent of your actual income. The LLC may even have to withhold taxes on non-US resident members. Be sure to consult with a CPA in each state to confirm the formulas and each member’s tax obligations.
What happens when you’re no longer doing business in a particular state and don’t want to keep up with the paperwork of being registered there? Withdrawing (or canceling) your LLC is very simple — you just file a certificate of cancellation with the secretary of state’s office in the state from which you want to withdraw.
The certificate of cancellation is a pretty standard form and contains some basic information, such as
You can normally download this form off the secretary of state’s website and mail it in with the filing fee. You don’t really need an attorney to file the certificate of cancellation. However, you should seek legal advice if the entity you are withdrawing has assets or physical locations in that state.
Sometimes, you don’t want to expand your empire as much as you simply want to move your empire. This process is often referred to as domestication or redomiciling, and it means moving your LLC from one state to another.
If the state you’re moving to allows it, you can keep your existing LLC and transfer it to the new state and then dissolve the record in the old state by filing a regular old dissolution. (I discuss dissolution filings in Chapter 16.)
If your state does not allow for this sort of easy transfer, then you need to form a new LLC in the new state, transfer over all of your assets, and then dissolve the old LLC. This isn’t necessarily a simple process; however, if your LLC has elected partnership taxation, there is a good chance it can be a tax-free one. Make sure to speak with a qualified CPA before going this route.