Under what scenario would an out of state LLC NOT have to be registered?


2

There are a number of people asking somewhat similar questions on here, and typically the answer is a combination of:

"You need to register as an out of state LLC"

"There is no reason to not register as a foreign LLC"

"It depends on your state"

"There is no reason to have an out of state LLC to begin with"

In my situation, I am interested in a New Mexico LLC specifically for the ability to remain anonymous as the LLC owner. Obviously this anonymity is lost as soon as I register as a foreign LLC in Illinois.

In my state, Illinois, the state specifically says that Foreign LLC owners can live in Illinois and have bank accounts, w/o requiring foreign LLC registration (those 2 things are listed among others as not constituting "doing business").

The business will be an internet based service, running on servers that are not in Illinois. The site will be created by developers from a 3rd party company that is not based in Illinois.

I will not be hiring any employees in Illinois.
I will not have any storefront or office in Illinois.
I will not be storing or shipping any products in/from Illinois.
The mailing address for the LLC will not be in Illinois.
Most of the day to day site operation will be offshored.

This isn't a tax avoidance scheme. All profits would flow to my personal tax return and be taxed at the state level the same if the LLC was a New Mexico or Illinois LLC.

Do you think I would be violating the rules by not registering as a foreign LLC?

LLC Incorporation Foreign

asked Oct 2 '10 at 02:08
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User4581
11 points

3 Answers


1

A: When not registering would not result in avoiding any state taxes.

While I would confirm everything with an Illinois lawyer, the reason across the states for foreign registration is precisely to enforce payment of state corporate tax. Generally if you report and pay all taxes due, you're fine (Illinois minimum franchise tax only applies to corporations, so it seems you are in fact paying all taxes due). If you were taking a salary, then it would be necessary to register in order to report all corporate taxes due, but since you aren't, no taxes slip through the cracks.

The Secretary of State and Franchise Tax Boards are two distinct state government entities and the former can't enforce rules & penalties set by the latter and vice-versa. Generally, the adverse consequences of doing business in-state without registering are tax-related (enforced by the Tax Board). The SecState has no real power to enforce fines on individuals, only on the business entities registered with them (this is why so many people can incorporate and forget to dissolve inactive companies that rack up renewal fees without consequence). However, the SecState can influence the loss of limited liability protection as recognized by courts through SecState records. But since a foreign entity's limited liability is protected by another state altogether (New Mexico, in your case), Illinois SecState has no power to remove said limited liability either by pointing to lack of registration. There's no de facto enforcement, not that any rules are being violated here if Illinois specifically indicates that foreign LLC members can be residents w/o registering.

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

answered Dec 31 '10 at 08:52
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Henry The Hengineer
4,316 points

0

You will be paying yourself so it looks to me like you need to be registered in Illinois.

answered Oct 2 '10 at 02:48
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John Bogrand
2,210 points
  • If this were the case, why would Illinois specifically say that LLC members can be residents of the state w/o registering the LLC? A side effect of that would also be that any investor in an LLC would have to register that LLC in their local state. As far as I know that isn't the case. By "paying yourself" I'm assuming you are talking about the company profits flowing through to my personal tax return. If you are talking about a salary, I wouldn't be taking a salary. – User4581 8 years ago
  • Sounds like you need to talk to an Illinois attorney... – Bstpierre 8 years ago
  • It's the only thing you have listed that would be something that could require you to be resistered. So I'd suggest to get an attorney to validate your thinking. – John Bogrand 8 years ago

0

Set up another New Mexico LLC to hold your membership interests in the first LLC. Then you can list the members in the first LLC as the second LLC.

answered Apr 1 '11 at 08:26
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User6492
1,747 points

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LLC Incorporation Foreign