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I live in Texas, and want to form a single member LLC (not decided which state). If I have paid visitors from all over the world, do I need to register foreign LLC in other states even though I am a virtual company?

Which states offer privacy protection of LLC members information in public records?

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6 Answers

up vote 3 down vote

Generally internet businesses do not have to register as foreign entities in other states. Each state has their own laws determining whether a business must register with them as a foreign entity. Usually, but not always, you must have a physical presence in the state to be considered "doing business" in that state. For a little more on this, see the edit in my response to this other question.

As for which state to form your LLC in, I would suggest you register the LLC in your home state. If you choose to register your LLC in a state other than your home state, then you will have to register your LLC as a foreign entity in your home state. That means you'll have to pay LLC fees in two states versus one. In my opinion, for startups, rarely do the tax benefits you may be able to get from registering in another state make it worth the hassle.

Also, depending on which tax structure you choose for your LLC, you may end up not getting much, if any, of a tax benefit from registering in another state. Take a look at Simple Overview of LLC Pass Through Taxation.

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"If you choose to register your LLC in a state other than your home state, then you will have to register your LLC as a foreign entity in your home state." - Not necessarily. Unless state law links member/manager and employee residency to a domestic registration requirement, it is relatively straightforward to work around since you can open a bank account for the entity elsewhere and operations are on the internet. – Henry the Hengineer Oct 30 '10 at 1:29
Re: Pass Through Taxation. States still vary in their personal income tax rates so registration in another state can lead to significant tax differences. – Henry the Hengineer Oct 30 '10 at 1:30
@NeoTycoon: You said, "...and operations are on the internet". Wow, that is not true. Transactions are done via the internet. However, you are operating from where you do work - that can be an office or it can be your home. As I stated in my answer, these laws vary from state to state. However, if you are performing work in that state, they will consider that "doing business" and will require you to register your business. The differences lie in the definition of work. The member's residency isn't the issue (and is probably irrelevant), the issue is where the member performs his work. – Zuly Gonzalez♦ Oct 30 '10 at 2:20
@NeoTycoon: Re Pass Through Taxation: I realize tax rates vary from state to state (in fact they even vary within the same state). What I was trying to get across is that 1) the LLC's tax structure plays a role in whether it is advantageous or not to register in another state (an LLC can be taxed as a partnership or as a corporation), and 2) even if there is a tax benefit to registering in another state, it may still not be worth it for other reasons. I hope that clears up what I was getting at in my answer. – Zuly Gonzalez♦ Oct 30 '10 at 2:37
up vote 2 down vote

I am not a Texas attorney, but the Texas Secretary of State website states:

The secretary of state does not maintain any information on the ownership of a LLC. The secretary of state has information on the initial members of a member-managed LLC. We also maintain records of an entity's registered agent and registered office address.

here.

The registered agent is the person/entity that is responsible for accepting service of process for lawsuits and other legal matters for the business. Regardless of where you register the LLC, the registered agent and its address will be public record as a matter of law. If you want to keep your name out of the public record as the registered agent, you will need to hire someone else to act in that capacity. If you register the company in another state, you will need to hire someone to act as your registered agent in that state.

If privacy is a concern, there are a number of ways to protect your privacy as an owner (trusts, agents, etc), but I would consult with a local attorney who is experienced in setting up Texas companies to discuss your options.

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up vote 1 down vote

It depends on whether your operations involve a "substantial nexus" to those states. For more details see http://tinyurl.com/ycjturh and http://tinyurl.com/yk88znp

I compiled a list of privacy protection states at one point and will update this later if there are others, but off the bat I know that Arkansas law protects LLC member/manager privacy and Delaware and Indiana do not require any disclosure of member/manager information.

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Consider setting up your business in a friendly state such as Nevada. Also consider setting up a 2nd company in an offshore entitity such as Greek Islands, Panama or Amsterdam. You could divide the revenue between the two llc's or however it makes sense. This may be a good tax strategy in the future. – Frank Oct 29 '10 at 4:28
up vote 1 down vote

Quite confusing of the Texas SoS to put that and the section quoted by Kyle on the same page of the SoS description! But what I think they are trying to say is that their own online database isn't maintained, not that the info. isn't available through the Comptroller of Public Accounts, which has its own database .

Now here's some solid evidence from the Texas Comptroller of Public Accounts. Go to https://ourcpa.cpa.state.tx.us/coa/Index.html and search for an LLC, i.e. ABERCROMBIE ACADEMY III, LLC. Then click on the officers/directors button. In several cases you'll see managers/members listed. Here's their note:

Officer and director information on this site is obtained from the most recent Public Information Report (PIR) processed by the Secretary of State (SOS). PIRs filed with annual franchise tax reports are forwarded to the SOS. After processing, the SOS sends the Comptroller an electronic copy of the information, which is displayed on this web site. The information will be updated as changes are received from the SOS.

You may order a copy of a Public Information Report from open.records@cpa.state.tx.us or Comptroller of Public Accounts, Open Government Division, PO Box 13528, Austin, Texas 78711.Austin, Texas 78711.

This actually demonstrates the importance of being aware of the link between corporation and tax regulations in the state: The SoS hands off all key info. to the state tax enforcement agency because the SoS has no enforcement powers of its own aside from recognizing limited liability entity status of domestically registered entities. It can't touch limited liability status of foreign entities, at least not through a registration requirement -- lawyers, know of any empirical cases this being tested in court? It wouldn't hurt to call the Secretary of State office and the Comptroller's office to clarify. You're paying taxes (presumably) for their operations after all!

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up vote 0 down vote

There's a lot of confusion on the topic you have raised, because there are different tests of companies' relationships with states for different purposes.

NeoTycoon's "substantial nexus" test - as noted in the first post to which he linked - pertains to taxation, not whether a foreign entity must register in a state.

I agree with the two main points of Zuly's answer:

  1. Each state has its own test for whether a foreign entity must register. For example, in CA it is "entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce" (see "Doing Business in CA? Be Sure to Register"). No matter how many CA customers you had, being located in TX your LLC probably would not have to register in CA under this test.
  2. Form the LLC in you home state for the reason Zuly stated, which is echoed in "Why (not) form an LLC in Nevada (or Wyoming)?".

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

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Taxation and foreign registration are intimately linked because the latter is the only practical means states can track and tax an out-of-state entity. No tax implications means no enforcement -- CA corp code Section 191a does not say anything about how it treats violations. The implications of violation are based on taxes owed. On a very technical legal level states may have their own tests for foreign registration, but actual compliance enforcement goes back to taxes owed to the state. In fact, the substantial nexus test may very well be determined by the state's own registration test. – Henry the Hengineer Oct 30 '10 at 0:30
Re: #2 Internet taxation is still in the grey zone. People following the eBay standard do not pay state taxes for online transactions with individuals from out of state. States are still trying to wrap their heads around enforcing taxes on transactions established on the internet, but as of now, there is no internet tax. How do reconcile your recommendation with Google Inc. and Facebook Inc. being incorporated in Delaware? – Henry the Hengineer Oct 30 '10 at 1:19
@NeoTycoon: Re: internet taxation. The "eBay state taxes" you are referring to is a sales tax issue, not an income tax issue. These are very different taxes. Sales tax is a tax collected on behalf of the buyer, and doesn't really influence the decision of where to register your business. – Zuly Gonzalez♦ Oct 30 '10 at 3:15
@NeoTycoon Re: Google & Facebook. These are large businesses. They are also corporations (my assumption based on you placing Inc.). This question is for a tiny, single member LLC. You are comparing very different entities. Google's needs are very different from a startup's needs. And as a result will make very different business decisions. I'm not trying to be rude, but giving a tiny startup advice based on what a large corporation does is not a good idea. – Zuly Gonzalez♦ Oct 30 '10 at 3:19
up vote 0 down vote

The below statement says member information in texas is public. This contradicts the reference given by Kyle.

http://www.sos.state.tx.us/corp/managementinfofaqs.shtml#mgmt7

The Texas Comptroller of Public Accounts collects management information for corporations and LLCs from the entity’s Public Information Report (PIR) that are filed as part of the entity’s franchise tax report. PIRs list the names and addresses of a corporation’s or LLC’s officers, directors, managers, or members, as applicable. PIRs are only filed once each year and are not updated during the course of the reporting year. Once the PIR has been processed by the Comptroller of Public Accounts, the PIR is forwarded to the secretary of state. Management information taken from the PIR is maintained by the secretary of state and can be accessed by the public through SOSDirect, by calling (512) 463-5555, or by email. Please note, the management information maintained by the secretary of state is not necessarily current, but is based on the last information received by this office.

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