What Happens If I Don't Register A Business As Foreign Entity In A State

What is a Foreign LLC or Corporation, and When Do I Need to Annals My Company in Another State?

Concern owners and investors doing business in multiple states often inquire the question of whether their visitor, that is set up in one state needs to be registered into the other state(s) where they are doing business. This registration from your state of incorporation/arrangement into some other state where you also do business is called a foreign registration. For case, permit'south say I'm a existent estate investor in Arizona and cease upward buying a rental property in Florida. Do I need to register my Arizona LLC that I use to concur my existent estate investments into Florida to take ownership of this property? The reply is generally yeah, only later reviewing a few states laws on the subject field I decided to outline the details of when you need to annals your LLC or Corporation into another state where you are not incorporated/organized. (Delight note that the issue of whether state taxes are owed outside of your abode state when doing business organisation in multiple states is a different analysis).

In analyzing whether you need to annals your out of state company into a country where yous do business organization or ain property information technology is helpful to empathise two things: First, what does the state I'm looking to do business organization in require of out of country companies; and Second, what is the penalisation for failure to comply.

When Practice I Need to Register Foreign?

Showtime, a survey of a few state statutes on foreign registration of out of state companies shows that the typical requirement for when an out of state company must register foreign into some other country is when the out of state company is deemed to be "transacting business" into the other country. So, the next question is what constitutes "transacting business"? The state laws vary on this merely here are some examples of what constitutes "transacting business" for purposes of foreign registration filings.

Employees or storefront located in the strange registration land.
Buying of real property that is leased in the foreign registration state. Annotation that some states (e.1000. Florida) state that buying of belongings by an out of state LLC does not by itself require a strange registration (e.thousand. a second domicile or mayhap land) just if that property was rented then foreign registration is required.

Here is an example of what does not typically constitute "transacting business organisation" for foreign registration requirements.

Maintaining a banking concern business relationship in the state in question.
Holding a meeting of the owners or management in the state in question.

So, in summary, the general dominion is that transacting business for foreign registration requirements occurs when yous make a physical presence in the state that results in commerce. Ask, do I have employees or real belongings in the state in question that generates income for my company? If so, you probably demand to annals. If not, you probably don't demand to register foreign. Annotation that in that location are some nuances between states and I've tried to generalize what constitutes transacting business and then check with your attorney or particular state laws when in question.

What is the Penalisation if I Don't Register Foreign?

Second, what is the penalization and consequence for declining to file a foreign registration when ane was required? This issue had a few common characteristics among u.s. surveyed. Many company owners fearfulness that they could lose the liability protection of the LLC or corporation for failing to file a foreign registration when they should have but most states have a provision in their laws that states something like the post-obit, "A fellow member [possessor] of a foreign limited liability company is non liable for the debts and obligations of the foreign limited liability visitor solely by reason of its having transacted business in this country without registration." A similar provision to this language was found in Arizona, California and Florida, just this provision is not found in all states that I surveyed. This language is skillful for business organisation owners since it keeps the chief asset protection benefits of the visitor in tact in the result that yous fail to register foreign. On the other hand, many states have another negative consequences to companies that neglect to annals strange. Here is a summary of some of those consequences.

The out of state visitor won't be recognized in courts to sue or bring legal action in the state where the business should be registered as a strange company.
Penalty of $20 per day that the company was "transacting business" in the state when it should have been registered foreign into the state but wasn't. This penalty maxes out at $x,000 in California. Florida's penalty is a minimum of $500 and a maximum of $ane,000 per twelvemonth of violation. Some states such as Arizona and Texas do not charge a penalty fee for failure to file.
The State where you should accept registered as a strange visitor becomes the registered agent for your company and receives legal notices on behalf of your company. This is really problematic because it means yous don't get notice to legal actions or proceedings affecting your company and it allows Plaintiff'south to sue your visitor and to transport find to the land without existence required to send notice to your company. Now, presumably, the land volition effort to get notice to your visitor but what steps us actually takes and how much time that takes is something I couldn't find. With 20 to thirty day deadlines to respond in most legal actions I wouldn't put much trust in a land authorities bureau to get me legal notice in a timely manner nor am I even certain that they would even try.
In addition to the statutory issues written into law in that location are some practical issues you will face if your out of country company is not registered into a state where you transact concern. For example, some county recorders in certain states won't let title to transfer into your out of state company unless the LLC or corporation is registered foreign into the country where the belongings is located. Information technology is also mutual to see insurance and banking problems for your company until you register foreign into the country where the income generating holding, employee, or storefront is located.

In summary, you should annals your company as a foreign company in every country where you are "transacting business organisation". Generally speaking, transacting business organization occurs when you have a storefront in the strange state, employees in the strange state, or property that produces income in the foreign country. Failure to file varies among the states but tin issue in penalties from $1,000 to $10,000 a twelvemonth and failure to receive legal notices and/or be recognized in court proceedings. Bottom line, if you are transacting business outside of your state of incorporation/organization yous should annals as a strange entity in the other state(s) to ensure proper legal protections in courtroom and to avoid costly penalties for not-compliance.