Attorney Thomas B. Burton answers the following question: "Can My LLC Legally Accept Clients from Any State?"
Attorney Burton discusses how an LLC set up inside of one state can legally do business with clients located in other states within the United States.
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Welcome back! I'm Attorney Thomas Burton and today we answer another question in my popular Question and Answer Series!
Today's question comes from Milwaukee and the writer asked the following:
"Can my LLC", which stands for limited liability company, "legally accept clients from any state/internationally? I am a Wisconsin resident and want to create an LLC that provides online editing services. I want to provide these services to anyone, in any state or country. Is this legally allowed? Also do I need to obtain any other permits, licenses in order to be compliant?"
Excellent question and this is an aerial law, where we fall into, the U.S. has 50 states and 50 state laws and state law governs the creation of LLCs. So LLCs, limited liability companies are a creature of state statute. They first became an entity type in the '80s in some states but more recently in other states and they've quickly become very popular for small business entities because they allow you the limited liability protections of a corporation, with more of the ease of management similar to sole proprietorship. You don't need to have shareholder meetings, stock certificates things like that with an LLC, especially a single member LLC.
So it sounds like you're looking to do a single member LLC for this online editing business and provide services all over the country and the world and in today's virtual world, this is very common but I agree with you, if you live in Wisconsin and you are based in Milwaukee, it seems to me you're likely going to want to form your LLC in the state of Wisconsin. So generally, you have to pick one state to form the entity and in this case, if you're living in Milwaukee, and providing the services from Milwaukee, forming a Wisconsin-based LLC makes sense because that's where the principal person providing the services will reside.
Where this gets more complex is you're going to be doing business in multiple states and so under the law, there's this idea that if you perform certain activities inside of another state, you need to register as a foreign entity or what they call a foreign LLC and by foreign, they mean foreign state, not foreign country, just so if you're going to do business in Minnesota, you might need to register as a foreign LLC. If for example, you were going to open a storefront there and sell, let's say automobiles or sell baked goods, you would register, you would say I have the Wisconsin LLC and I'm registered as a foreign LLC, doing business in Minnesota because you likely would meet their physical presence requirement and let's say, you hired employees there and opened a storefront, things like that, now each state has different rules on what requires you to file as a foreign LLC but generally, you need to be minimum contacts with the state, where you're doing business in the state and in my experience, for many online businesses who are simply selling a product or service online, that doesn't meet the threshold of having to register as a foreign LLC in every state because there are 50 states and this would be quite a burden for example, small online sellers, I mean imagine an eBay store, selling in multiple states but with no physical presence in those states.
So if you establish regular business contacts in the state, hire employees there, open in office things like that you should probably need to look at the laws of that state and consider filing as a foreign LLC but if you're the only person doing the business activities, you're living in Milwaukee, you're providing the services through an online exchange portal, email, whatever, it's less likely you would need to file a foreign LLC in all these other states.
Same with foreign countries, it gets more complex because you have to check the law of each foreign country but again, online only businesses generally aren't doing that. If you're amazon and you're opening a distribution center in Ireland, you're going to need to file as a foreign company doing business in Ireland.
Now for Wisconsin, you just need to figure out if you need to collect sales tax on what you're providing, you said online editing services, so figure out if it's, if you fall under services or if you're selling a product, you may need to collect sales tax with the Wisconsin department of revenue and then depending exactly where you are in Milwaukee, if there was any city, if you're in the city, if you need a local license to run a business out of your home, I don't know if you're running it out of your home, but if you are, check with local city or zoning licenses. Not every local municipality has that but the larger cities you might but again, an online business, less likely to need lots of permits than a physical storefront, you would be opening. For instance, if you're in a residential neighborhood and you're trying to open a physical storefront with a lot of business traffic that might not be allowed under zoning ordinances but an online business from your home, fairly common these days, again check whatever, if you're literally in the city of Milwaukee or some suburb nearby, just check and make sure on any local licenses you may need but the other part I think is the sales tax, check with the state of Wisconsin and see if what you're selling, falls on their services or if it's an online digital product, you may need to collect sales tax. So check with them and or a tax lawyer on this but in general, you can set up your LLC here in Wisconsin, start using it and operating as a business in Wisconsin, an LLC incorporated in Wisconsin in all of the 50 states using the online methods.
So best of luck and congratulations on your new business!
Thanks for tuning in and we'll see you next time.
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