At some point, business success can cause good problems. For example, when your business has expanded into another state, this is a good “problem” to have! But it does raise some questions, like, Can I live in one state and own a business in another?
You may also choose to live in one state but operate your business out of another state. That is perfectly legal and can even be financially prudent. But when you open or expand your business into another state, you have to comply with that state’s laws and regulations.
Depending on how similar or different this state’s laws are, such compliance can be costly and possibly disruptive to your operation. In this guide, we will answer the question, Can I live in a state different than my LLC? We’ll also discuss how to best position yourself to live in one state and own a business in another.
Domestic and Foreign Businesses
Living in a different state than the state within which you form your LLC raises the concept of “domestic” and “foreign” businesses. These concepts do not refer to national and international business distinctions (e.g., a German business operating in the United States). Rather, when we speak of domestic and foreign businesses, we are talking about state-to-state distinctions. An example of this would be a Colorado business that operates in Florida.
So a domestic business operates in the same state in which it was formed. A foreign company operates in a different state from the one in which it was formed. In Florida, domestic businesses have access to certain benefits that unregistered foreign businesses cannot access. However, when a foreign company has enough contact in another state, the foreign entity must meet certain legal requirements. The question then becomes, When does a foreign business operate enough in another state to trigger those requirements?
Doing Business In Another State
People often ask,: Can I live in a state different than my LLC? The answer is “yes.” However, when your LLC has sustained continuous commercial activity in that other state, the other state’s legal requirements kick in. Regularly conducting business activities in another state will almost always require you to register your LLC in that state, and registering in that state will likely require you to pay fees and taxes to certain state agencies.
So what does it mean to have sustained and continuous commercial activity in a certain area? That answer varies from state to state. Therefore, it is safe to say that if you have non-incidental commercial contact within another state, you probably need to address the reality that you are operating as a foreign business. This means you must find out if you need to register as a foreign business to avoid penalties, fees, and the possibility that you’ll have to pay back taxes to that state sometime in the future.
How to Structure Your Business in Another State
Structuring your business to comply with the foreign state’s laws is critical to avoiding regulatory disruptions, paying fees, penalties, and back taxes. Below are the three most common ways to live in one state and own a business in another.
Domestication means you actually move your business from the state where you live and make it a domestic business in a new state. In this model, your business is literally leaving the state where it was started and adopting a new location as its domestic state. An example of this would be a business that was “born” in Colorado moving its operations entirely to Florida. To do this, you must take the following steps:
- Obtain a Certificate of Good Standing in your old state;
- Get a registered agent in the new state;
- File a Certificate of Domestication (called Articles of Domestication in Florida) in the new state and pay the proper filing fees; and
- Dissolve your business in your old state.
Under this scenario, your business gets to retain its tax ID number, bank accounts, credit rating, and all of its commercial contracts. This option is good if a substantial portion of your business activity is centered in the new state. However, it’s important to note that many states do not allow domestication. So be sure to check the rules before making a decision.
Register as a Foreign Business
You may not wish to end your business activities in your current state. Instead, you may simply want to expand into a second location. If so, you may wonder, Can I register my LLC in another state?
Simply registering your business as a foreign business in a new state is the least disruptive and most straightforward way to expand your territory. In this model, you recognize your substantial and sustained commercial activity in a foreign state and want to follow the law by registering and paying all proper fees and taxes. To register your LLC as a foreign business, you must take these steps:
- Maintain your business as a domestic business in the state where it was formed;
- File an Application by Foreign Limited Liability Company for Authorization to Transact Business (this is the Florida form) and pay the proper fees; and
- Obtain a statutory agent in the foreign state.
Note that the above registration may go by another name in other states (e.g., Certificate of Authority, Statement of Foreign Entity, etc.). Like domestication, your business gets to keep its tax ID number, bank accounts, credit rating, and all of its commercial contracts when you register in another state.
Dissolution or Merger and Forming a New Business
Although more complicated, dissolving your current business and transferring its assets to a new business can create a “reset” or separation without having to start your entire commercial enterprise over from scratch. This model’s core is an asset purchase agreement (APA).
First, you’ll need to form a new LLC in the state where you want to move your company. That new entity will be the buyer in the APA, and your current business will be the seller. Under the APA, you transfer all of your current business’s assets to the new entity. After the sale, you then dissolve your old business. The downside of this option is that you will need a new tax ID, and you’ll need to open new bank accounts. You will also start a new credit history with the new entity, and you’ll need to transfer all of your commercial agreements (e.g., leases, service agreements, etc.) to the new entity. A slightly different approach to the APA would be to merge your current business with the new company. To do this, you can use a merger agreement which, while not the same as an APA, does substantially the same thing.
We Shepherd Businesses To Success
At BrewerLong Business Law, we have a long history of guiding our business clients through the stages of growth and success. We are here to help business owners venture into new areas and learn to operate legally in other states. Contact us today to discuss how we can help you succeed!
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