It’s not unusual for many Americans to dream of going into business for themselves. After all, why work for someone else when you could run your own business and keep the profit? America makes it possible for even one person to start a business, whether it’s online or an owner-operated physical location. But one thing you have to do to start a business is to register as a specific business structure. One of these structures is a Limited Liability Company (LLC).
LLCs have become one of the most popular business structures in the country because it is easier to maintain than a corporation. While it requires a bit more work than a Doing Business As (DBA)/sole proprietorship, it has the advantage of protecting your personal finances from liability. With an LLC, the personal assets of the owners and employees are shielded from personal liability. Private bank accounts will remain legally inaccessible.
Forming an LLC is a good strategic move. However, you should be aware that there’s more than one type of LLC. Depending on your situation, you may need to register a Foreign Limited Liability Company. What is this, and is it relevant to American business owners?
Not As Foreign As You Think
Let us clarify the biggest misconception. There are two kinds of foreign LLCs. The first foreign limited liability company is, of course, a company that is started by someone who is not an American citizen. The most common reason for this type of foreign LLC is when a foreign company has decided to open a branch here in the USA.
A state will consider an LLC local only if that business has been formed in and operates within that state. For example, you have formed an LLC in one state and have decided to carry out business in another. The other state where you wish to conduct business will consider it a foreign limited liability company.
How It Works
It may never be an issue for business owners whose long-term goal is to operate strictly within the confines of their state of residence. However, you may need to designate yourself as a foreign LLC for the following reasons:
- Seeking funding from banks or lenders out of state
- You need to obtain or renew certain licenses or permits that cross states
- You are expanding your business with a new location in another state
- Your business hires an employee that is physically located in another state
Expansion is the most common reason that business people need to create a foreign LLC.
If you operate in another state without informing the state of your intention, you can face financial penalties, tax issues, and even void some aspects of contracts you’ve signed.
Are You A Foreign LLC?
You should register as a foreign LLC if your business leads you to do any of the following in another state:
- Open a business bank account
- Hire employees
- Conduct meetings or business in that state
- Own property
- Secure an office, store, warehouse or another physical facility
- Act as a distributor or manufacturer’s representative
Every state has unique requirements, so you should familiarize yourself with these or consult with a business lawyer for everything you need to know.
Foreign LLCs In California
So what if you have an existing business in another state and are thinking of opening a branch in California? You will need to secure a Certificate of Good Standing or an equivalent in the business’s home state. It states that your business is legitimate, in good standing in your home state, and is properly maintained. Once obtained from your home state you will need to file the “Application to Register” with California. There is a $70 processing fee to register in California and you can file it either in person or by mail with the Secretary of State.
For the correspondence and other specific requirements involved in registration, there needs to be a designated agent to handle the exchange. The agent can either be a manager or member of the LLC that lives and works in California, with a California mailing address, or a duly designated representative authorized to receive documents on behalf of the company. The representative must be a registered corporate agent qualified with the California Secretary of State. It does not have to be a permanent position and is required only for the Service of Process.
Once you have filed all the appropriate information, submit your application along with the filing fee to the state. Make sure you are aware of the California minimum franchise taxes tax and pay them in a timely manner. Your business can now operate as a foreign LLC in California.
Business Filing Section