Attorney Thomas B. Burton answers the following question: What is a Foreign LLC or Foreign Limited Liability Company?
Are you planning to do business in another state with your LLC (Limited Liability Company) besides the one where you formed your company? In the United States, an LLC is often called "foreign" in one state, when it is set up under the laws of another state. In this video, we discuss the concept of a "foreign" LLC and discuss situations when you should register your foreign LLC in another state when doing business in another state.
Want to set up an LLC and not sure where to start? Download a FREE copy of my 5 Step Wisconsin LLC Startup Guide.
➮ Subscribe to Burton Law LLC’s channel to get notified when we post new videos.
Welcome back, I'm Attorney Thomas Burton and today's question is - "What is a foreign LLC?"
So a foreign LLC, when I first heard the term, it sounded to me like an LLC formed in a foreign country because when we use the word 'Foreign' in the United States, we're often referring to another country but in this instance, it means an LLC formed under the laws of another state.
So because we have 50 states here in the US and LLCs are creatures of state law, if you form an LLC in California but then you want to transact business in Wisconsin, you would be defined as a foreign LLC in Wisconsin. So foreign meaning the law of another jurisdiction, another state.
So if you hear that term 'Foreign LLC', it's referring to an LLC formed under the laws of another state, that's transacting business in 'State B', let's say it's formed under state A, doing business in State B or in my example, because I'm licensed here in Wisconsin, a California LLC doing business, transacting business in Wisconsin.
Now, where it gets sticky is, you will have to decide if your LLC meets the definition of transacting business in the state in question, the foreign jurisdiction, the foreign state to decide if you need to register. So recently a question came up about whether you need an LLC in all of the different states you're doing business in and while you can form LLC's in other states, often what you might want to look at doing first is filing as a foreign LLC in that state, authorized to do business.
So in Wisconsin, we'll take a look here at the department of financial institutions, this is where you would file as a Foreign LLC, foreign out of state corporation to do business in Wisconsin and you will see here on in Wisconsin, they say, "Not all activities in which a foreign entity may engage constitute the transaction of business for the purpose of the licensing requirement." So they're not saying every business has to register but those that do, this is how you would do it by filing the forms on this page, with a filing fee and let's see what does it say, the filing fee $25 there, for one of the fees for expedited service but then there's a filing fee to register but it's not the same as forming a new LLC, this would be registering your LLC from another state.
Now here's the part I would look at if you're considering Wisconsin, the registration exceptions, the corporation section does not license foreign banks, building, savings and loans, credit unions, insurance companies or motor clubs, that's under constitute an insurer.
So that would be different department of insurance but a lot of states have exceptions for certain activities that they don't define as constitute as doing business in the state, thus not requiring you to file as a foreign LLC. For example, maintaining, defending or settling any civil criminal, administrative or investigatory proceeding in a state, does not require you to file as foreign LLC. Holding meetings of the board of directors, shareholders or members or carrying other activities concerning internal corporate affairs. So if you have an LLC in California and for some reason, you have a meeting of members in Wisconsin, internal meeting that wouldn't require it. Just maintaining a bank account in Wisconsin, would not require you to register. Selling to independent contractors, lending money, here's a good one to note, owning without more property, so let's just say you just own a piece of real estate or property in the state of Wisconsin, they're saying without doing more than that just owning it, doesn't require you to register as a foreign LLC and other states often have this one, conducting an isolated transaction that is completed within 30 days and that is not won in the course of repeated transactions of a like nature. So that's a mouthful but essentially, they're talking about a off or occasional transaction, once in 30 days that doesn't occur very often, wouldn't require you to register, transacting business and interstate commerce; so interstate commerce is the movement of services and goods between two states, so from like Illinois to Wisconsin, a truck traveling with goods from Illinois through Wisconsin to Minnesota, interstate commerce, just doing that would not require you to register.
So again, each state has their own requirements on what constitutes doing business for the purpose of registering as a foreign LLC. That's why if you're watching this video in another state, you're going to have to look at - A. where is my LLC set up, what is my home jurisdiction where the LLC is set up and B. am I doing business in, is there some other state where I do a lot of business in it, do I need to consider registering as a foreign LLC in that state?
So here's the statute about doing business in the state - "If a corporation has any of the activities that are specifically included in the statutory definition of doing business in the 'state', the corporation has nexus, except were prohibited".
So here's some examples issuing credit cards or travel and entertainment cards to customers in Wisconsin, regularly selling products or services of any kind or nature, to customers in Wisconsin that receive the product or service in Wisconsin regularly, soliciting business from potential customers in Wisconsin, regularly performing services outside Wisconsin for which the benefits are received in Wisconsin, regularly engaging in transactions with customers in Wisconsin that involved tangible property or excuse me, intangible property and result in receipts flowing to the corporation from within Wisconsin, holding loans secured by real or tangible personal property located in Wisconsin, owning directly or indirectly a general or limited partnership interest in a partnership that does business in Wisconsin, regardless of the percentage of ownership, owning directly or indirectly an interest in the limited liability company that does business in Wisconsin regardless of the percentage of ownership if the limited liability company is treated as a partnership for federal income tax purposes.
This is under, a ruling may be required, department of revenue, this is the revenue statute about doing business in the state and defining nexus. You could take a look at that for some ideas of whether your activity qualifies enough nexus to require you to register but again, look at these registration exceptions here that are clearly laid out.
Then one more thing I'll just show you is a blog article on this this is northwest registered agent, they provide registered agent services, so for example, if you were filing as a foreign LLC, you would need to hire a registered agent in the state and they sell a service where they would perform that for you and they go over the filing fee, there it is on the form, a $100 then that $25 expedited service but they put some of this stuff in more plain English and they say, "A foreign LLC is an LLC that was originally formed in one state or jurisdiction that now wants to do business in another state or jurisdiction.
What does "Doing business mean?" - in general an LLC is doing business in Wisconsin, if it, now they say owns or leases property but remember the exception here says owning without more property doesn't require you to register and that's different from some other state but if you have employees, you have agents or sales people, you're opening offices, business locations, things like that the more factors you have with nexus with the state, the more likely you need to register as a foreign LLC.
You can take a look through this article, they talk through some of the steps, like you say in more plain English and they kind of say here, "Do foreign LLCs need to file formation documents in states where they do business?" Not unless you want to form a separate LLC, the whole point of foreign qualification is so that your LLC remains one entity in multiple states, instead of forming a brand-new Wisconsin LLC, you just need to register your current LLC as a foreign LLC in Wisconsin. So that's true but some states are more affordable to file an LLC and if you're doing a lot of business there, like Wisconsin, it's only a $130 to file online, whereas California, it is quite expensive, your strategy may depend on your asset protection strategy because if you're doing a lot of business, maybe you would just open a Wisconsin LLC and have it owned as a flow through entity by your other LLC in another state or a corporate parent.
So in summary, it's a $100 to file, they say it takes about five business days and if you want expedited, you pay the $25 and they would help you do it, if you wanted help or if you're questioning whether you need to file, I would consult with a business attorney in the state you're looking at doing businesses, who can examine the statute and question about whether what you're doing qualifies you to foreign, as doing business "in the state" but you can go through some of this analysis yourself and figure out and certainly you can register as a foreign LLC on your own through each state secretary of state or in Wisconsin's case, through the department of financial institutions and then it has its own annual fee after you registered to do so and again, you can do it through Wisconsin DFI and you get the forms there.
In this case, it looks like it's still a paper form that you send by mail, so they don't have the online filing option there but I'll just go back on camera briefly here, at the end, to say that would be the process of registering as a foreign LLC and in today's video, I was just hoping to explain more about that term 'Foreign LLC' because when it comes up, it can sound confusing but the key concept is because we have 50 states and we're all under one federal government, you can do business in multiple states and it would be particularly onerous on businesses if they had to form 50 entities in every state they do business, especially, for interstate commerce, example, think of selling items on eBay, where you're all here in Wisconsin, you're just shipping products to other states. That would be a classic example of interstate commerce where you're, if all your operations are in Wisconsin, you have the product here in Wisconsin, you do it yourself, the likelihood that you need to register in a foreign, another state, as a foreign LLC is very low because all you're doing is everything in Wisconsin and then shipping it across state lines using, in our example, let's say UPS, not you going there at all but the more you're reaching out doing business in other states, with physical locations, employees, you traveling there things like that, you may form nexus with the state and then need to file as a foreign LLC doing business in that state.
That's the concept of a foreign LLC and how it can work with other states laws doing business in other states. I thought it would be helpful to you to discuss today on the channel.
Thanks for tuning in and thanks for the question and we'll see you next time.
© 2022 Burton Law LLC. All Rights Reserved. Transcript and captions provided for ease of access for the hearing impaired. For questions about this topic, or to suggest a topic for a future blog post, please contact the office.