LLC Domestication vs. Foreign Registration
It’s not uncommon for a limited liability company (LLC) to want to do business in a new state. An LLC can do business in its legal home state—called its domicile or state of formation—but it must file the right paperwork to transact business in a state that is not its state of formation.
An LLC that wants to do business in a new state has two basic options:
- Do business in the new state as a foreign LLC. The LLC registers as an out-of-state LLC (called a foreign LLC or foreign entity) with authority to do business in the new state.
- Domesticate into the new state. The LLC changes its legal domicile state by completing an LLC domestication—sometimes called an LLC conversion. For example, a California LLC that completes a conversion to Texas becomes a Texas LLC governed by Texas law after the conversion.
Although both options allow the company to do business in a new state, they are designed for different situations. A company’s situation and business objectives determine which procedure is appropriate.
What’s the Difference Between Domestication and Registration as a Foreign LLC?
The key difference between an LLC domestication and registration as a foreign LLC is that domestication changes the state law that governs the company. An LLC that registers as a foreign LLC in a new state is still organized in the original state and governed by the original state’s law. An LLC that domesticates to a new state is governed by the new state’s law after completing the domestication.
Switching LLC laws can be a significant benefit in some situations. For example, let’s say ExampleCo, LLC, is a Maryland LLC whose owner moves to Arizona. The company’s principal office location will be in Arizona, and the owner believes Arizona law is a better fit for the business’s long-term goals. In this case, a domestication to Arizona seems like the obvious choice.
On the other hand, if ExampleCo, LLC, is a North Carolina LLC that is simply opening a new South Carolina location—and the owner still lives in North Carolina and is satisfied with North Carolina law—then obtaining authority to do business in South Carolina may be sufficient to meet the business’s goals.
How Does the Foreign LLC Registration Process Compare to the Domestication Process?
An LLC acquires legal authority to do business as a foreign LLC by submitting the petition or application required under the new state’s law. Most states publish a form that an LLC files with the secretary of state’s office (or equivalent business filing office). The form is usually called an Application to Register as a Foreign LLC, a Foreign LLC Registration Statement, or something similar.
An LLC domesticates to a new state by completing a multi-step domestication process. The company must ordinarily create a plan of domestication (also called a plan of conversion) and file the domestication document that each state requires (called articles of conversion, certificate of conversion, articles of domestication, or something similar). Although an LLC domestication involves more steps than a foreign LLC registration, the domestication process is relatively straight-forward and is substantially less burdensome than other methods of changing an existing business’s state of formation.
Can an LLC Still Do Business in the Original State?
Registration as a foreign LLC does not affect an LLC’s authority to do business in the original state. A California LLC that registers to do business as a foreign LLC in Texas can still do business in California.
An LLC that domesticates to a new state is no longer organized in the original state, so it can no longer do business in the original state as an in-state LLC (called a domestic LLC or domestic company). The company can continue doing business in the original state after the domestication if it registers there as a foreign LLC. For example, an Ohio LLC that domesticates to Delaware is a Delaware LLC after the domestication. If the post-domestication Delaware LLC wants to do business in both Delaware and Ohio, it can file an application to register as a foreign LLC with the Ohio Secretary of State.
How Do Fees for Registration as a Foreign LLC Compare to Domestication Filing Fees?
The filing fees for registering as a foreign LLC vary between states. For example:
- Florida charges $125.00;
- Texas charges $750.00;
- Arizona charges $150.00; and
- California charges $70.00.
An LLC that domesticates to a new state pays a filing fee for each state’s domestication document. Because domestication involves two states, the total filing fee is usually (but not always) lower for a registration as a foreign LLC. South Dakota, for example, charges $750.00 for registration of a foreign LLC and $150.00 for an LLC domestication to South Dakota from another state.
Domestication can sometimes reduce a company’s annual reporting fees. For example, a Georgia LLC that registers as a foreign LLC in Virginia must file an annual report in both states—paying a $50.00 fee in Virginia and a $50.00 fee in Georgia. If the company intends to focus its business only on Virginia, it can avoid Georgia’s annual report and fee requirement by completing a Virginia domestication.