Out of State LLC: Everything You Need to Know
An out of state LLC, also known as a "foreign" LLC, is a business entity that operates in another state. However, in order to conduct business outside of the state where the LLC was originally formed, you must qualify to do so.3 min read
2. Which State to File Your LLC In? Delaware LLC
3. Which State to File Your LLC In? Nevada LLC
4. "Doing Business" in Another State
An out of state LLC, also known as a "foreign" LLC, is a business entity that operates in another state. However, in order to conduct business outside of the state where the LLC was originally formed, you must qualify to do so. If your LLC repeatedly engages in business matters outside of its state of formation or has a physical presence in another state, you will need to take all of the necessary steps to qualify. If you are ready to expand your LLC or would simply like to conduct business in another state, here is what you should know.
What Is a Foreign LLC?
When referring to a "foreign" LLC, this means that the business is operating outside of the state from which it originated. For example, an LLC may be formed in Florida, but if the company conducts business in Delaware, it will be considered a foreign entity within the state of Delaware. In order to take this step, your LLC may need to qualify by meeting certain requirements.
In comparison, a "domestic" LLC is a company that is operating in the state or organization. This means that the LLC is conducting business where it was formed. In this case, qualification is not required.
Which State to File Your LLC In? Delaware LLC
For those who form an LLC, Delaware is a popular state to do so. This state has a great reputation, known to be one of the best places to form and operate a business. This is based on a number of reasons:
- First, Delaware does not tax out-of-state income. For those who do very little business in the state itself, this can lead to significant tax savings.
- The initial filing fees and the associated franchise taxes are fairly low.
- Delaware is also unique among the 50 states as it offers the Chancery Court — which only handles business matters. This decreases processing times and allows companies to stand before a judge that is well-versed in business affairs.
Which State to File Your LLC In? Nevada LLC
Nevada is another state known for its pro-business reputation, especially when operating an LLC. Owners of Nevada-based businesses appreciate that the state does not tax capital gains, business income, or inheritance. There are also no franchise taxes — however, there are small annual fees. Nevada also does not require operating agreements or annual meetings in order to remain compliant with state laws.
Both Delaware and Nevada offer fast processing times, so if you would like to get your business up and running as quickly as possible, this advantage is certainly something to consider. Wyoming is also becoming known as a business-friendly state.
"Doing Business" in Another State
If your company is conducting business in a state other than the state where it was formed (or incorporated), then you will need to register your business in that specific state. In some cases, you may need to register in multiple states. This is what's known as "foreign qualification" — and is a critical step.
If you're wondering what counts as "conducting business," please be mindful of the following scenarios:
- If you are an LLC based in Nevada and someone from the state of Florida buys your product, this would not mean that you are conducting business out-of-state.
- If you have a physical presence or are selling goods in the state of Florida, however, this would count as an out-of-state business.
Put simply, "doing business" will typically require either a physical office or at least an active business presence.
Each state has varying guidelines, but overall the process is fairly similar. State registration fees also vary, ranging from $100 to $300.
If you believe that you are operating an out-of-state LLC, it is imperative that you're aware of what that means in terms of state requirements. This is particularly true in terms of legal actions and taxation. In California, for instance, the state can impose a hefty $2000 fine per taxable year if an out-of-state LLC has failed to pay the required fees and taxes. This is the type of situation that can shut a company down — so practice due diligence and ask the right questions.
If you need help forming an out of state LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.