Many LLC owners are surprised to find that forming their LLC is only the beginning of the legal journey and that there are constantly new laws to comply with, licenses to obtain, etc. In this Part 4 of our series “Your New LLC”, we will discuss some of the things you need to do from a legal standpoint to transact business outside of the state in which your LLC was formed.

First, it must be understood what it means to “transact business.” Most states have statutes with a list of things that are not considered “transacting business” but do not provide a detailed definition or list of what actually constitutes “transacting business.” For example, in South Carolina, merely owning real property in South Carolina does not result in a finding that a foreign (out-of-state) LLC is transacting business in South Carolina. However, if that real property generates income (is rented out; the LLC provides a third party with the right to harvest timber on it for a fee; etc.), then it is very likely that the LLC will be considered to be transacting business in South Carolina. But, again, the lack of a clear definition of “transacting business” leaves a lot of gray areas in which an LLC could be at risk of violating laws with respect to foreign LLCs transacting business in a state. While every circumstance must be looked at individually in a subjective, fact-intensive fashion, there are certain objective parameters that a foreign LLC can utilize to make a reasonable conclusion as to whether or not it will be considered to be transacting business. As an example, most states will deem a foreign LLC to be transacting business in the state if the LLC has a physical presence in the state and is generating some sort of business income in the state.

So now let’s assume it is clear that a foreign LLC will be transacting business in another state. Well, then, what does the LLC need to do? In most states, the LLC will need to register with the agency or department in the state which regulates corporations and other business entities. The registration is typically known as “foreign qualification” or applying for a “certificate of authority to transact business.” Basically, it is a notice filing telling the state that the foreign LLC was created elsewhere but intends to do business in the state. In South Carolina the foreign LLC would fill out an “Application for a Certificate of Authority by a Foreign Limited Liability Company to Transact Business in South Carolina” and submit it to the South Carolina Secretary of State’s Office. The fee is $110.00 and a “Certificate of Good Standing” or a “Certificate of Existence” from the LLC’s home state must accompany the application (this is basically a document from the LLC’s home state regulating agency telling the world that the LLC has paid all of it fees, is validly formed, etc.). Additionally, an in-state registered agent name and address must be provided on the application. While getting this application filed and approved in South Carolina allows a foreign LLC to transact business perpetually (assuming the LLC stays validly formed in its home state), most states will require an annual fee in order to keep the “Certificate of Authority” in place – so this added expense needs to be taken into consideration when budgeting for the out-of-state business expenses (as does the registered agent fee if the foreign LLC does not have a representative and an address it can readily use).

In addition to obtaining a “Certificate of Authority” or similar registration, all other state and local licensing requirements must be complied with as if the foreign LLC was like any other LLC or business in the state. See Part 3 of our series entitled “Federal, State and Local Registration, Licensing and Permitting” for a more in-depth discussion of these state and local requirements. But as an example, if a foreign LLC wants to sell goods from a South Carolina business location, it would need to register for a retail license (sales tax license) from the South Carolina Department of Revenue (even if the foreign LLC has a sales tax license in its home state) and obtain any local business permits or licenses required by the county, city or town in which the foreign LLC is selling its goods.

In conclusion, it is critical that LLCs not only ensure that they are in compliance with their home state’s laws but also those of any other state in which it decides to “transact business.” In Part 5 of our series we will discuss some options for LLC owners when they not only want to transact business in a new state with their LLC but actually want to relocate their LLC to a new state.